Good day, everyone and welcome to the Boot Barn Holdings Fourth Quarter Fiscal Year 2021 Earnings Conference Call. As a reminder, this call is being recorded. It is now my pleasure to turn the conference over to your host, Mr. Jim Watkins, Senior Vice President of Finance and Investor Relations. Please go ahead, sir.

Thank you. Good afternoon, everyone. And thank you for joining us today to discuss Boot Barn's fourth quarter and fiscal 2021 earnings results. With me on today's call are Jim Conroy, President and Chief Executive Officer; and Greg Hackman, Chief Operating Officer and Chief Financial Officer. A copy of today's press release is available on the Investor Relations section of Boot Barn's website at bootbarn.com. Shortly after we end this call, a recording of the call will be available as a replay for 30 days on the Investor Relations section of the company's website. I would like to remind you that certain statements we will make in this presentation are forward-looking statements. These forward-looking statements reflect Boot Barn's judgment and analysis only as of today, and actual results may differ materially from current expectations based on a number of factors affecting Boot Barn's business. Accordingly, you should not place undue reliance on these forward-looking statements. For 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 fourth quarter fiscal 2021 earnings release, as well as our filings with the SEC referenced in our disclaimer. We do not undertake any obligation to update or alter any forward-looking statements whether as a result of new information, future events or otherwise. I will now turn the call over to Jim Conroy, Boot Barn's President and Chief Executive Officer. Jim?

Thank you, Jim and good afternoon. Thank you everyone for joining us. On today's call, I'll review our fourth quarter and fiscal 2021 results, highlight each of our key strategic initiatives and provide an update on current business. Following my remarks, Greg will review our financial performance in more detail and then we will open the call up for questions. Looking at our recent results, the fourth quarter was extremely strong with consolidated same-store sales growth of 26.9% driven by a combination of underlying strength in the business and external factors, including a boost from recent government stimulus, as well as an easy comparison to the end of March last year. Same-store sales in our physical stores were very strong, increasing 28.5% with growth driven primarily by an increase in transactions. The momentum our e-commerce business experienced since the start of fiscal 2021 has continued, with sales increasing 19.5% over the same period last year with even more pronounced growth in profitability. Merchandise margins were also very strong, increasing 300 basis points year-over-year and driven primarily by better full-price selling. Another component of the improvement in merchandise margin was a 120 basis point benefit from lower shrink. I'm pleased with the ability to drive profitable sales and maintain our full-price selling philosophy across both channels. The acceleration in sales and strength in merchandise margin resulted in fourth quarter earnings per diluted share of $0.82, compared to $0.20 in the prior year. And adjusting for the tax benefit in both years, we grew earnings per diluted share more than 300% to $0.75, compared to $0.18 in the prior year periods. Moving to the full year. Despite the impact from COVID-19 and subsequent macroeconomic headwinds, we were able to achieve very strong results. Consolidated same-store sales grew 3.1% led by e-commerce growth of 23.6% partially offset by a 1.1% decline in retail stores. For our store comps to be down only 1% for the year after such a slow start due to COVID, it's truly remarkable and shows how strongly the business has rebounded. Our e-commerce business exhibited very strong sales growth during the year and we made significant progress improving the omni-channel experience for our customers. Our continued focus on full-price selling and commitment to profitability drove consolidated operating profit growth of 100 basis points during fiscal 2021 to 9.7%, up from 8.7% in fiscal 2020. When adjusting for the tax benefits recognized in both periods, earnings per diluted share grew 23% to $1.92 compared to $1.56 in the prior year. We are extremely pleased with the earnings power demonstrated by the business, given the myriad of challenges over the last year. I will now provide an update on each of our four strategic initiatives, beginning with driving same-store sales growth. During the fourth quarter, we saw very healthy sales across both our stores and e-commerce business. As discussed on our last earnings call, sales started off strong in January with outsized same-store sales growth at 17%, helped by stimulus payments received at the start of the calendar year. While February business was also positive, both in-stores and online, we did see a sequential deceleration compared to January as a result of headwinds including lack of rodeos and events, delayed tax refunds and severe weather across much of the country. With the release of additional stimulus funds in the month of March, business reaccelerated with outsized growth in both channels, especially in comparison to March of 2020, when sales declined sharply due to the original onset of COVID. From a geographic perspective, we saw solid growth across all three regions of our stores. Business in the West remained strong, showing sequential improvement over the prior quarter. Notably the North region showed the most sequential improvement from roughly flat in the third quarter to growth similar to the West region in the fourth quarter. The South region, which includes Texas, posted strong growth in the fourth quarter rebounding nicely after comping negatively in the third quarter. From a merchandise perspective, we saw broad-based growth across all major merchandise categories with particular strength in Work Boots, Men's and Ladies Western Apparel and Western Boots. Consistent with the third quarter, Work Boots again performed extremely well. The strength in Men's and Ladies Western Apparel was driven by solid growth in denim and in knit tops. Our Work Apparel business comped positively during the fourth quarter despite continued pressure on FR Work Apparel, which declined mid-single digits year-over-year, which was a sequential improvement from the third quarter. We believe the broad-based growth across merchandise categories is a testament to the strength of the underlying business and represents a desire of our customers to refresh their wardrobe and have been influenced by our customers' receipt of stimulus payments. From a marketing perspective, we continue to focus on each of our core customer segments through a comprehensive media mix by segment that includes radio, television, direct mail and digital. We use a combination of customized marketing messages and tailored merchandising strategies to address each of our customer segments. During our third quarter call, we discussed our increased focus and attention on the newly created Just Country segment. As part of this initiative, we have augmented our assortment in hiking boots, outerwear, casual footwear and apparel. We believe that this work, coupled with advantageous consumer trends towards being outdoors and dressing more casually, has enabled us to further increase sales and capture a broader group of customers. From an operational perspective, our field leadership team once again rose to the challenge of the ongoing acceleration in sales volume. I must call out our regional directors and our district managers, who pivoted quickly from the challenge of keeping stores open and operating at the onset of the pandemic, to then hiring sales associates aggressively and ensuring that every store has a solid management team in place to meet the outsized consumer demand in the business today. During an incredibly tumultuous year, this team managed to grow total annual sales, maintain a high level of customer service and keep voluntary store manager turnover below 15%. This is quite a feat in retail today, and even more of an accomplishment during a COVID-impacted year. I would be remiss not to express my gratitude to this group for the leadership and strength they have shown over the past year. Similarly, our e-commerce team and each of our two distribution centers have been able to keep pace with the surge in demand. In fact, in order to further support the outsized business we are experiencing, we have reduced the reliance on our vendor supply chain. Accordingly, we are servicing more of our e-commerce orders directly from our fulfillment center rather than relying on vendors to drop ship orders. Additionally, we took action early on in the fiscal year by deciding to temporarily warehouse some non-fashion replenishment goods to ensure that we have more control over the replenishment process to the stores, allowing us to react quickly to customers' product needs. I must commend the entire merchandising and supply chain organization for working tirelessly to fuel the spike in business, minimize out-of-stocks and enable us to continue to build market share. Moving to our second initiative, strengthening our omni-channel leadership. During the fourth quarter, we saw very strong sales in our e-commerce business with same-store sales increasing 19.5%. As we discussed for some time, increasing the profitability of this channel has been a major focus. And therefore we are very pleased to see EBIT growth more than double during the fourth quarter. Once again, bootbarn.com sales outperformed the balance of our e-commerce business, with top line growth of over 40% in the quarter. Sales at sheplers.com declined when compared to the prior year, which was in part a result of the new pricing structure completed in July of last year. Several omni-channel initiatives we've implemented over the past two years, including buy online pick up in store, buy online curbside pickup, in-store fulfillment, same-day delivery and buy online, return in store continue to be very well received by our customers. We continue to develop faster and more effective ways to deliver e-commerce orders to our customers, further enhancing customer service and mitigating freight costs. Additionally, we are using many of these new capabilities to drive increased traffic to the stores, which is helping us to both drive incremental store sales, as well as grow the percent of our customers that shop across both channels. This should serve us well going forward as it further drives customer loyalty and strengthens our competitive position against pure e-commerce players. As we look to fiscal 2022, our focus will remain on augmenting our omni-channel service offerings while continuing to build the profitability of that channel. Now to our third strategic initiative, exclusive brands. During the fourth quarter, exclusive brand penetration reached 24.2%, an increase of approximately 10 basis points compared to the prior year period despite facing product constraints due to supply chain disruptions. Our fiscal 2021 exclusive brand penetration grew approximately 170 basis points over the prior year to 23.7%. We are very pleased with our penetration growth during the year, given the challenges we have faced as a result of COVID-19. The high-quality nature of our exclusive product is further evidenced by their representation of top selling brands in our stores. Cody James, Shyanne, Idyllwind and Hawx are each in our top 10 selling brands in the store during the fourth quarter. As we look to fiscal 2022, we have already seen nice improvement in the supply chain. As a result, we expect exclusive brand penetration to grow approximately 250 basis points in our first fiscal quarter, as well as our fiscal year. Finally, our fourth initiative, expanding our store base. During the fourth quarter, we opened 8 new stores and closed 1 store, bringing our total store count to 273 stores across 36 states. For the full fiscal year, we opened 15 new stores as planned. We are pleased with our new store performance during fiscal 2021, given the difficult environment and uncertainty with how new stores would perform during the pandemic. Our new stores opened this past year have exceeded our sales plans and are expected to pay back within our targeted three-year period or better. We continue to be involved in the whitespace opportunity we have across the country to continue building our store base. We have a solid pipeline set up for fiscal 2022 and expect to deliver 10% new unit growth in the coming year. That said, given the impact of COVID-19, we did not reaccelerate our new unit growth plan until the last six months of fiscal 2021. As a result, we expect new store openings to be back half loaded in fiscal 2022. Our current plan is to open approximately 3 stores in the first quarter, and 7 stores in each of the second and third quarters, with the balance to be opened in our fourth fiscal quarter. I'd now like to provide an update on current business. Our first quarter is off to a tremendous start with both our stores and digital channels continuing to produce very strong results. Given the impact of COVID on our early fiscal 2021 results, we believe that a comparison of current business to the same period two years ago provides the most helpful view into our results relative to a more normalized environment. When compared to the same period two years ago, total sales in the first six weeks of our first quarter increased approximately 67% from $87 million in fiscal 2020 to approximately $145 million. This also represents a sequential acceleration when comparing total sales growth in Q4 of fiscal 2021 to the same period two years ago. Not only has the business been extremely strong, but the week-to-week sales volume has been relatively consistent for the entire six-week period. We are very pleased with the underlying strength of the business and solid execution of the team and believe that our growth is outpacing the underlying growth in the industry. That said, we do attribute a portion of the strength in the business to our customers' receipt of stimulus payments, pent-up demand and an overall more favorable macro environment. I'd like to now turn the call over to Greg Hackman.

Thank you, Jim. Good afternoon, everyone. In the fourth quarter, net sales increased 37.2% to $259 million. The increase in net sales was primarily a result of the 26.9% increase in same-store sales, the sales contribution from temporarily closed stores that were excluded from the comp base and the incremental sales from new stores opened over the past 12 months. Gross profit increased 59.4% to $92.4 million or 35.7% of sales compared to the gross profit of $58 million or 30.7% of sales in the prior year period. The 500 basis point increase in gross profit rate resulted from a 300 basis point increase in merchandise margin rate and 200 basis points of leverage in buying and occupancy costs. Merchandise margin increased 300 basis points, primarily as a result of better full-price selling and a 120 basis point benefit from lower shrink. Operating expense for the quarter was $59.5 million or 23% of sales compared to $48.3 million or 25.6% of sales in the prior year period. Operating expense increased primarily as a result of additional cost to support higher sales and increased incentive-based compensation. Operating expense as a percentage of sales decreased by 260 basis points, primarily as a result of expense leverage on higher sales. Income from operations was $32.9 million or 12.7% of sales in the quarter, compared to $9.7 million or 5.1% of sales in the prior year period. Income tax expense was $6.3 million in the quarter compared to $900,000 in the prior year period, resulting in an effective income tax rate of 20.3% in the fourth quarter. Net income was $24.6 million or $0.82 per diluted share compared to net income of $5.7 million or $0.20 per diluted share in the prior year period. Excluding the tax benefit in both periods, net income per diluted share in the current period was $0.75 compared to $0.18 in the prior year period. Turning to the balance sheet. Inventory decreased approximately 8.7% on a comp store basis compared to last year. On a consolidated basis, inventory decreased 4.5% to $276 million. This decrease was primarily driven by the reduction in comp store inventory, partially offset by an increase in inventory for the new stores added in the last 12 months. As of March 27, 2021, we had a total of $111.5 million of debt outstanding related to our term loan and zero drawn on our $165 million line of credit. We have $73 million in cash on hand at the end of the quarter, and our net debt leverage ratio at the end of the quarter was 0.4. Subsequent to year end, we made a $41.5 million voluntary prepayment on our term loan, reducing the outstanding balance to $70 million. While we are pleased with the underlying strength in the business, it is very difficult to parse out the impact and duration of government stimulus, pent-up demand and macroeconomic tailwinds on the business. Given the circumstances, the company is only providing select full year fiscal 2022 guidance at this time. In addition to new unit growth of 10% and exclusive brand penetration growth of approximately 250 basis points, the company also expects capital expenditures to be in the range of $33 million to $36 million, and the effective tax rate for the year to be 26%. Now I'd like to turn the call back to Jim for some closing remarks.

Thanks, Greg. Our fiscal 2021 proved to be a challenging year. I am proud of the resiliency of this organization and the overall strength of the Boot Barn model. We have proven our ability to navigate as a company through difficult times, and I believe we will continue to fortify our leadership position in the Western and Work industry. I'm looking forward to fiscal 2022 and the opportunities we have to continue to build the business. Now, I would like to open the call to take your questions. Devin?

Thank you. We will now be conducting the question-and-answer session. Our first question comes from the line of Matthew Boss with JP Morgan. Please proceed with your question.

Great. Congrats on excellent, really great quarter and even more so in the momentum.

Thanks, Matt.

So, Jim maybe on the 67% quarter-to-date comp relative to fiscal '20. And I think even more importantly, the consistency that you mentioned, particularly in May or the back half of that comp period. What do you attribute to the magnitude that you're seeing? And just any way to parse out the micro drivers of continued category opportunity that you're excited about where the market share opportunity that you see going forward in the Western landscape, which I know is fragmented?

Sure, good question. We will absolutely start with attributing, you know, a healthy dose of our current business to macro. You know, the stimulus checks that came out at the end of March is our immediate pickup in business. I will say that the business has remained very strong for longer than it has in the past coming off of stimulus, so the durability of that is very positive. I think one other thing we're experiencing is people are now finally feeling more free to get out, go outside, go out for dinner, et cetera. And we're seeing it across the merchandise categories. So while we were continuing to get some sales growth in the last couple of quarters, more of it was needs-based. And now it's really much more discretionary categories, so it's men's and ladies apparel, it's Western boots — we've seen a decent business in our exotic skin cowboy boots. And we've seen a pivot from purely functional to more of a discretionary, wants-based business. To try to give you real specifics on the 67%, firstly, that is total sales growth over two years ago. So there are some sales attributed to additional store count — that might be 10% or 12% of the 67%. So then the balance is the remaining 55%. I would say that we were coming in with a sales trend of several quarters prior to COVID that was around plus 10, and maybe we're executing a bit better than that. The balance of it is going to be macro, it's going to be pent-up demand. As we look forward, all that said and attributing a fair amount of the current business to macro, there's still wins in our sales. Going forward, because we're still operating in an environment where many rodeos and concerts aren't happening, but they're finally starting to come back sporadically, over the next 12 months we'll start to see big events, rodeos, concerts that weren't in the last-year period come back online. The second macro thing that might give us additional sales going forward is the recovery in the oil patch. We call that FR Work Apparel for a reason — it's still negative, but it's less negative. The price of a barrel of oil is between $60 and $70 today, and we believe that part of the economy will start to show some more growth. So while some of these macro factors may dissipate over time, we'd like to think there are some other things that will help us continue very strong sales growth — perhaps not 67% over two years, but still pretty strong growth over the next couple of quarters. Hopefully that gave you some color on how we're feeling about the business.

Yeah, that's great color. And then maybe if we broke it apart, one level deeper on brick and mortar. So just given the strength that you're seeing at stores, and then tying to the acceleration and unit growth that you cited for the back half of the year, is there any ceiling for annual unit growth relative to the 10% that you've historically pegged the model at as we look forward? And just any metrics that maybe you can share on some of the new market builds that give you confidence in longer-term, accelerating the unit growth opportunity here?

Absolutely. We feel very good about our new store development. We have a full pipeline, albeit that many of those stores will open in the latter half or even the fourth quarter of this fiscal year. The positive signs that we're seeing are multiple. We've seen very strong openings for brand-new stores in essentially brand-new markets that may not have had the same brand recognition as in our more mature markets like California and Texas. So that gives us confidence that as we get into parts of the country that may not traditionally seem to be natural for a Western retailer, those stores are doing quite well. They're doing well selling Western merchandise as well as work merchandise, and the split of business is very similar to the rest of the country. So very strong early results from northeast markets for the initial group of stores there. The second piece is as we are filling in some of our mature markets, most notably California and Texas, the level of cannibalization that we're seeing from surrounding stores has been very minor. Now admittedly, it's being completely masked in today's business by extremely outsized sales growth. But even prior to the acceleration, as we were filling in these more mature markets, the pull from local markets was pretty minor. And perhaps the third piece is being able to open up new stores during a pandemic, when people aren't necessarily out buying footwear and apparel, and project them to be coming in at better than a three-year payback — that is very confidence-inspiring for our new store pipeline. So as we get to the next fiscal year, I'd like to think that we probably accelerate a bit beyond the 10% new unit growth.

That's great color. Best of luck, guys.

Thank you.

Thank you.

Thank you. Our next question comes from line of Max Rakhlenko with Cowen & Company. Please proceed with your question.

Great, thanks a lot. And congrats on a very nice quarter. So, Greg any color on a framework how you're thinking about gross margin and SG&A for 1Q? And then just maybe more broadly, there are many inflationary pressures across the industry. So, how are you thinking about offsetting those, whether it's transportation, labor or any other headwinds?

Sure, Max, great questions. You know, in terms of gross margin, we aren't giving specific guidance, of course, but in terms of gross margin, we've continued to see over the past several quarters really nice improvement in full-price selling; some of that's been benefited by exclusive brand growth. And part of that has been just being a bit less promotional, whether it's depth of discounting or the duration of the event. So, I would expect that that will continue to expand merchandise margins somewhat, with the help of exclusive brands. I think that trend will continue. Obviously, the 120 basis point increase in shrink was notable in Q4 — if you spread that out over four quarters to normalize it, it's less dramatic. We also benefited in shrink from having really great customer service. I think our stores and field group were really focused on managing that customer connection and that helped us with reducing the external shrink component. You did touch on another piece of gross margin that's probably a headwind and that is freight expense. We expect to see increased inbound freight expense; we saw a little bit of that in Q4. Having said that, we were able to mitigate that expense by some of the things the e-commerce team is doing in terms of shipping, encouraging customers to pick up product at the store, where we can consolidate a shipment and reduce our freight costs. So we'll have good news on merchandise margin expansion and we'll probably have some headwind from freight. Net, I think will grow our gross margin rates. In terms of SG&A and some of the pressure there, we have seen increased labor costs over the last couple of years; I expect that we'll continue to see pressure. Again, the field has done a nice job of building average transaction and basket size and that helps us alleviate some of that wage rate pressure and keeps the labor rate component in check. We saw some nice leverage in Q4 with the outsized sales growth. Those are the main things. And then finally, vendor pricing increases — we have heard some vendors talk about passing along cost increases, whether it's cotton or resin or other inputs. We would expect to pass that on to the customer. We're not uniquely disadvantaged here, and so I think we'll be able to manage our margin rate at the level we've done in the past, even with those price increases.

Got it, that's very helpful. And then can you provide some more color on things that you're doing proactively to drive strong private brand growth? And then on Just Country, how are you seeing that category evolve over time? And do you think there could be a new private brand on the horizon? And then just last, you've historically spoken to 10 point higher on merchandise margins versus national brands — is that still the case? And as you gain economies of scale, are there opportunities to maybe increase that by several points over time? Thanks a lot and good luck.

So the exclusive brand growth — what's happening in the current quarter is our supply chain has started flowing again and we're getting back in stock. The exclusive brand team and the supply chain team have gotten us back in stock despite the overall business having grown in an outsized manner. I think that coupled with the fact that our store teams are educated on our exclusive brands, they understand the features and functions, they tend to wear the product in the store, etc., we've put all those things together and we're seeing very nice momentum in exclusive brands that has continued now for several years. Just Country as a customer segment is really helping us to continue to drive more sales in general. We launched that initiative and the timeliness of it was somewhat coincidental but fortuitous as people were going out and hiking more and being outdoors. It's fit perfectly with that trend. We've seen nice early reads on hiking boots, knit tops for men and ladies, baseball caps — all for that customer who is just outside the core Western customer. On new exclusive brands, we're in the early stages of developing new exclusive brands that would target the more country customer. I would not build anything into this year; product might hit stores in the fall or into the fourth quarter, and be a more meaningful part of the assortment in our next fiscal year. Regarding margin expansion opportunity in exclusive brands versus national brands, we are absolutely getting more efficient and getting better economies of scale when we buy and source our exclusive brands. But we also want to develop the best product in the industry. If we can get incremental markup we might put it back into the make of the product or split it to improve product quality because we want these brands to stand on their own against third-party branded partners. Ironically, as third-party vendors change pricing to us, it may make them a little less competitive to consumers, potentially giving us further opportunity to grow exclusive brands. For the time being, I would model that 10 points of margin expansion.

Got it. Thanks a lot, Jim. That's very helpful.

You're welcome.

Thank you. Our next question comes from the line of Jonathan Komp with Baird. Please proceed with your question.

Yeah. Hi, thank you very much. Jim, I want to just follow-up and maybe clarify how you're thinking about the business. It seemed like maybe you're signaling and looking at sales on a two-year basis, and really using maybe the trend before the most recent period that you've seen, sort of, you know, 20% or so growth on a two-year basis maybe as a floor going forward. So I want to just clarify if that's how you're thinking of things? And then also, when you look forward, what are the events that you're looking forward to whether it's late July or in the summer in terms of some of the social events coming back that can be meaningful?

Sure. On the first piece, if you think about 10% new stores and if we ex out that factor, that wouldn't give us a full 10% new sales growth because stores are only a portion of total sales and a new store doesn't always open at the average volume of a store. So 10% new stores doesn't give us completely 10% new sales growth. Our same-store sales were posting plus 10 comps in store and better than that online. Our online business may even get stronger once we cycle the sheplers.com pricing in July last year. So our underlying comp can be quite strong as we cycle the macro impact of some of the tailwinds. In terms of events, there are a number of them. One example is Cheyenne Frontier Days, one of the larger rodeos, which happens in July and is going forward. Many country music artists, including our partner Brad Paisley, have posted concert schedules and are going to be very active over the next several months, mostly outdoor amphitheater concerts. The finals of the rodeo season in December in Las Vegas drives growth everywhere and a lot of growth in December. As we cycle into the spring of next year, some of the really large events we expect will come back include the Fort Worth Stock Show and the Houston Rodeo. Houston Rodeo is three weeks long and the entire rodeo season in Texas has a massive impact on sales. We'll also get back to festivals like Stagecoach or CMA Fest in Nashville. So there's reason to be optimistic, though admittedly business right now also benefits tremendously from macro factors like stimulus.

Excellent, very helpful. Maybe a follow-up for Greg. When I look at gross margin, the last two quarters above 35% and overall EBIT margin above 13% combining the most recent quarters. Anything in the mix there or components of the business that's not sustainable from a margin perspective, especially given some of the commentary about growing the exclusive penetration and continuing to grow e-commerce profitability? Just how should we think about using the last two quarters as a baseline from a margin perspective?

I think if you look at merchandise margin, we believe the improved full-price selling can continue, maybe not at the pace of the last two quarters, but it can continue. Being less promotional and exclusive brand growth have helped. The 120 basis point shrink improvement in Q4 may be partially transitory; if you spread it across the year it normalizes. We also benefited from leverage in buying and occupancy and in SG&A. Some of that leverage we saw in Q4 was driven by outsized sales growth and may not be as repeatable, but there will be some stickiness. We also want to call out marketing — we historically earmark about 3% of sales for marketing, and in Q4 we didn't spend to that level given the outsized sales; we likely won't spend at Q4 levels in Q1. Labor and corporate overhead should benefit as sales grow in an outsized way and will provide leverage.

Okay, very helpful. Thank you.

Thank you.

Thank you. Our next question comes from the line of Janine Stichter with Jefferies. Please proceed with your question.

Hi, everyone and congrats on the incredible momentum. Want to ask a bit about the inventory. I think you mentioned you're doing more of your own fulfillment versus I think you'd typically do a lot of drop ship. Maybe just talk a little bit more about that. Are there any margin implications there, anything we should think through in terms of the impact on the balance sheet? And then secondly, I was just curious about the Sheplers rebranding, I think that was a quarter or two ago, I'm just curious where that stands and if that's still a headwind to e-com, considering the growth you've already seen?

Okay. On the first piece, there are really two parts to what we did differently in our supply chain. The first was because we have a fair amount of product that is low-fashion, replenishment-based, we pre-bought some of that and brought it into our distribution center. Historically many third-party goods went directly from vendors' distribution centers to our stores, but as we started to see business accelerate, some of our bigger vendors agreed to have us warehouse product to secure the ability to stay in stock in the stores. That is somewhat temporary and it wasn't all vendors, just a couple. The second piece is drop-ship. Historically roughly 25% of online orders would be drop-shipped by vendors. We've expanded our Wichita-based fulfillment center, added automation and have increased the assortment we carry in Wichita. We've taken that drop-ship percentage down to roughly half, about 10% to 12%. The margin implication is positive because vendors would charge a drop-ship fee which we now don't have to pay, so it's more profitable to fulfill from our own center. We can only do this to a point given the long tail of SKUs online, but where we can control the supply chain it's more profitable and often a better customer experience. On Sheplers, we changed the branding last year and were highly promotional until about July 1st. Since July 1st we've been cycling more of a full-price business. So while that can be a drag on top line versus the deeper promotions of prior periods, it's better for profitability. Once we get to July, we expect that business to be flattish to positive on top line, but the profitability profile will remain strong. We expect bootbarn.com to continue to be the larger contributor to our e-commerce success.

Okay. And just as you think about the difference between sheplers.com and bootbarn.com, I always thought Sheplers as being the more promotional site. What do you think is the biggest point of differentiation? Are you seeing more cross-shopping between the sites? Or at some point do you think most customers should ultimately migrate to Boot Barn? How do you think about what Sheplers stands for now that you've rebranded it?

The rebranding went back to its roots as more hardcore Western. Sheplers' focus is more denim-based and apparel-based; Boot Barn skews more broadly. Sheplers skews more male and a bit older. There is overlap between the brands, but less than you might think in terms of pricing. Strategically, having Sheplers allows us to match competitors' lower pricing when necessary without creating a large disconnect between bootbarn.com and our stores. We haven't seen a lot of irrational pricing behavior in the industry, but we have Sheplers if we need that strategic flexibility.

Great. Thanks for the color.

Thanks, Janine.

Thank you. Our next question comes from the line of Peter Keith with Piper Sandler. Please proceed with your question.

Hey, guys. Thanks for taking the question and great results. Maybe just a follow-up, Jim, on the gross margin dynamics. So the merchandise margin expansion is tremendous. We think that this is structural in nature, largely attributed to the dynamics at Sheplers or is there some carryover effect at Boot Barn and as you mentioned it's a pretty rational environment — looking forward a year or two as promotions pick up could Boot Barn margins be under a bit of pressure from where they've been?

Let's isolate the pieces. We had a very strong margin rate improvement in the quarter — Greg called out 200 basis points of leverage on the gross profit line and 120 basis points of improvement on the merchandise margin line. Consolidated merchandise margin improvements are being driven by backing off large clearance promotions, going less deep, shorter duration or narrower parts of the store on sale. The vast majority of our sales are at full price and we're continuing to increase that. We are very clean from an inventory standpoint; our clearance inventory is relatively small and getting smaller, particularly with strong top-line sales. That leaves exclusive brands — they have started to show strength this quarter. We're back to 250 basis points plus penetration growth versus last year and the outlook is strong, which will continue to give us margin rate improvement going forward. Historically, if we can increase exclusive brands by 2.5 percentage points that drives 25 basis points of merchandise margin improvement; we've tended to exceed those targets in recent years because full-price selling exceeded expectations. That might be harder to lap, but I don't envision a near-term quarter where we lose 100 basis points of merchandise margin because of pricing pressure. That would be unusual.

Okay, good answer. Secondly, on the northeast stores, skepticism has existed about the model there. You talked about store productivity metrics looking solid and you've got stores in Pennsylvania. When opening in the northeast, are you making any changes to the assortment? Do you see differences there versus the rest of the base or are they right in line?

At a high level, there's very little difference. If you walk through the store with the merchandisers you'll see aesthetic differences, but Western still outsells Work in those parts of the country. We're seeing a nice business in ladies apparel, but it's still relatively small in the grand scheme. The model that works across 30-plus states is working in the northeast with minor adjustments. Boot Barn brand name had some recognition in that part of the country, which helps when we open a store. Conventional wisdom might say you won't sell cowboy boots and hats in Pennsylvania, but we're seeing customers there buy cowboy hats and boots.

Okay. Thanks, keep up the good work.

Thanks, Peter.

Thank you. Our next question comes from the line of Sam Poser with Williams Trading. Please proceed with your question.

Thanks for taking my question, I have two. Regarding the supply chain, what percent of your goods are coming from the Americas now, because you get a lot of boots and stuff coming out of Mexico? And how impacted are you by goods coming through the Port of LA from Asia?

Sam, it's Greg. In our last 10-K we disclosed roughly half of our merchandise comes from China and I don't think that has meaningfully changed. About a quarter of the merchandise comes out of Mexico — leather-soled boots, denim, things like that. The balance is U.S. and some other countries. A lot of our supply chain comes through the ports in Southern California. We're pleased that things seem to be getting more on track; delays have improved perhaps 50%. We feel pretty good about it and so far it hasn't had a meaningful impact on our top line.

Thanks. And then secondly with the 40% comp you ran on the bootbarn.com business and your inventory question — what were the learnings you got from seeing what people actually go to online? How is that impacting the way you assort the stores now? And now that you're running with your store inventory levels relatively low, do you want to build them back or can you achieve objectives with slightly less inventory?

You are absolutely right — we can get reads online and feed learnings to store merchandisers. As we see things emerge online we can bring them to stores or expand them more quickly. We're also increasingly able to fulfill e-commerce demand from store inventory. One thought is to bring more exciting merchandise into some stores and use it to drive a better in-store experience and then sell it down via e-commerce if it turns relatively slow in-store. In terms of inventory levels, we are trying to get back to where we were. We've learned we can grow top-line business on a bit less inventory. With that said, we wish we weren't down 8.7% on a comp store basis; down 5% versus last year might be fine. Our philosophy remains to be in stock with all sizes particularly in footwear, which requires a healthy inventory investment, but we probably can run a little leaner than prior recent years.

Thanks very much and continued success.

Thank you, Sam.

Thank you, Sam.

Thank you. Our next question comes from the line of Paul Lejuez with Citigroup. Please proceed with your question.

Hey, thanks guys. Jim, on the last point talking about inventory, are there any places or new categories where you feel more constrained than others? Or do you see a point in time where there may be constraints based on the ability to replenish goods in certain categories? And how do you plan to manage inventory as we think about the quarters throughout the year?

In terms of categories, the big drivers of the business are either entirely in stock or mostly in stock and have easy substitution effects — work boots, blue jeans, men's cowboy boots. If someone comes in looking for a particular lace-up work boot and we don't have exactly that one, there is a logical substitute. The buyers have worked hard chasing orders, rebooking and managing cancellations to keep product flowing, which is part of why our results outpace the industry. The areas where we've had more exposure are smaller but important — ladies fashion apparel. That's a smaller piece but it has performed extremely well. It tends not to be automatic replenishment and we have to commit seasonally; we weren't always able to forecast the strength we saw. Through hard work and agility we've found new vendors and gotten product in place. So that business continues to be strong but was the area of greatest constraint previously, which we've been managing through hustle and vendor development.

Got it. And then, Jim, I don't remember the exact number, but you had mentioned in the past that perhaps 75% to 95% of your assortment sold at full price. Let me know if I'm misremembering, but I'm curious how low did that number ever get and where are we now?

We tend to use terms like 'vast majority' because a precise number gets complicated. But consolidated, we're probably north of 75% to 80% of sales at full price. The balance is clearance and occasional promotions. We'll always have some promotional activity because certain customers look for sales and it gives us the ability to rotate items and show freshness. When launching new exclusive brands we might run modest promotions to accelerate trial. So there's ongoing opportunity to improve full-price selling, but with diminishing marginal returns. We're not out of ideas.

Got it. Thank you, good luck.

Thank you.

Thank you.

Thank you. Our next question comes from the line of Mitch Kummetz with Pivotal Research. Please proceed with your question.

Yes, thanks for taking my questions. I've got two on the sequential improvement of the business. So you guys said plus 67% quarter-to-date on a two-year and then Q4 was plus 34%. My first question is can you give us the breakout by month? It sounds like a lot of things happening in the quarter and I'm curious how those months worked on a two-year basis. And then I have a follow-up.

Sure. You're right — from Q4 into Q1 on a two-year comparison total net sales went from approximately plus 34% to plus 67%. In terms of sequential improvement between the quarters, everything has improved. The one business that continues to be negative is FR Work Apparel. If you want to break it down to monthly sequential two-year, it's messy, but the quick answer is we've seen sequential improvement from February to March, March to April and then a slight sequential deceleration from April to May, which is reflected in the earnings release. The messiness comes from rodeos — in February and March of fiscal 2019 we had rodeos in Texas and in fiscal 2021 we did not, so that matters to the math. We've seen a nice progression and very nice sequential improvement overall.

Mitch, just to clarify, our total growth in Q4 was 37% to the prior year on a one-year basis. If you were calculating two-year comps you got to make sure you're comparing the right periods, but Jim covered the sequential trends well.

Thanks. My second question — is it fair to say the bulk of the improvement is happening in discretionary categories, those that might be more dependent upon social interaction? I'm trying to understand if money is flowing to discretionary because stimulus dollars tend to be used on discretionary items, or because we're entering a post-COVID environment and people are interacting socially again so dollars flow to categories that were depressed for the last year? How do you see that?

I think the second piece you mentioned is a huge factor — people are refreshing wardrobes. There's a portion attributed to stimulus and it provided a jolt starting in the third or fourth week of March, but the business has held at a stronger level for five or six weeks. So stimulus is in the system but it seems to be more than that now given the duration of the strength. People are going out more, wearing our product and wanting new outfits. Work boots are still strong, but discretionary categories like apparel and certain boot styles have seen meaningful improvement as well.

Okay, that's helpful. Thanks, guys.

Thank you.

Thank you. Our next question comes from the line of Jerry Hamblin with Craig-Hallum. Please proceed with your question.

Thanks and congrats on the tremendous performance. I wanted to come back to gross margins for a second. The improvement in shrink caught my attention for the magnitude of it — 120 basis points. In terms of thinking about sustainability, is that something you feel like for the rest of fiscal '22 you have gains to make on that, or was there something specific in the quarter that allowed such a large gain?

Great question. In the first half of the year our store sales were more depressed and our teams took that opportunity with reduced customers in the store to provide outstanding customer service, which helped manage shrink levels. A piece of the improvement was opportunistic — they made the most of lower traffic — and that may not be fully repeatable. If I were to parse out how much of the 120 relates to that, it might be 20 to 30 basis points. The balance comes from focusing on paperwork, processes and attention to detail. So I think a lot of that improvement sticks with us as we move through fiscal '22.

Great. And in terms of channel performance moving forward, you talked about Sheplers and dynamics there. Given the outperformance in retail same-store sales in March, and dynamics in the current quarter, how should we think about which channel might be higher in the back half of the year? Do you think retail stores will continue to outperform and if so why?

It's complicated given macro factors, but retail stores will remain the majority of sales — roughly 80:20 stores to e-com. Retail stores may show stronger comps in certain quarters as we cycle easier compares, for example in the second quarter we cycle a negative compare. We returned to positive comps in Q3 last year and had low single-digit retail comps then. Looking forward, March was very strong which makes some comparisons complicated in later quarters, but stores are healthy and profitable and will continue to be our core. E-commerce is growing strongly and consistently but stores remain the majority from a sales perspective.

That's helpful. Keep up the great work, guys.

Thanks, Jeremy.

Thank you.

Thank you. Our next question comes from the line of Jay Sole with UBS. Please proceed with your question.

Great. Thank you so much for taking my question. Jim, I wanted to ask about some of the actions you took a couple months ago about positioning inventory and changing supply chain processes to be ready for the stimulus-driven moment. What was the insight into your consumer that gave you confidence to take those actions and do things differently than in the past heading into January, February, March and April sales?

We have a customer that often needs our product for functional reasons, and we were seeing strength building earlier. The bet we made had relatively low downside risk — much of our product is replenishment-based and low fashion, low markdown risk. Many other retailers, particularly mall-based ones, were slower to get traffic. We decided to be aggressive on inventory for certain categories to secure in-stock positions, and it turned out to work well. The merchandising team executed by chasing orders and managing the supply chain. We also temporarily brought some vendor product into our distribution center to ensure security of supply to stores. We will transition out of that temporary approach as appropriate, but it gave us the ability to meet demand and capture market share.

Got it. Thanks so much.

You're welcome.

There are no further questions at this time. I'd like to turn the floor back over to management for closing remarks.

Well, thank you everyone for joining the call today and we look forward to speaking with you all on our first quarter earnings call. Take care.

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation and have a wonderful day.