Boot Barn Holdings, Inc. Q1 FY2022 Earnings Call

Please standby. Good day, ladies and gentlemen, and welcome to the Boot Barn Holdings Incorporated First Quarter 2022 Earnings Call. As a reminder, this call is being recorded. I would now like to turn the conference over to your host, Mr. Jim Watkins, Senior Vice President of Finance and Investor Relations. Mr. Watkins, please go ahead.

Thank you. Good afternoon, everyone. Thank you for joining us today to discuss Boot Barn's first quarter fiscal 2022 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 today, and actual results may differ materially from current expectations based on a number of factors affecting Boot Barn's business. Accordingly, you should not place undue reliance on these forward-looking statements. For a more thorough discussion of the risks and uncertainties associated with the forward-looking statements to be made during this conference call and webcast, we refer you to the disclaimer regarding forward-looking statements that is included in our first quarter fiscal 2022 earnings release, as well as our filings with the SEC referenced in that disclaimer. We do not undertake any obligation to update or alter any forward-looking statements whether as a result of new information, future events or otherwise. I will now turn the call over to Jim Conroy, 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 first quarter fiscal 2022 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. Given the impact COVID had on our performance in early fiscal 2021, we believe that a comparison of our first quarter results to the same period two years ago provides the most helpful view into the underlying strength of the business. During the first quarter, our business performed very well across the board. We generated strong total sales growth on a two-year basis of 65%, with retail stores up 66%, and e-commerce up 56%. While we believe there are macro tailwinds at play, the superb execution by the entire team in securing merchandise, expanding our customer base and staffing the stores to meet the additional demand has resulted in another exceptional quarter. Compared with two years ago, our merchandise margin increased 220 basis points, fueled primarily by better full-price selling, growth in exclusive brand penetration and a less promotional stance online. I am very pleased with the continued momentum in our business. The overall strength in our top line and margin rate drove record earnings of $1.35 per diluted share compared to $0.33 in the same period two years ago. When adjusting for the tax benefit in both years, we grew earnings per diluted share approximately 300% to $1.26 compared to $0.32 in the same period two years ago. Before I provide an update on each of our four strategic initiatives, I would like to take a minute and reflect back on the broader strategy for Boot Barn over the past few years. With so much focus on the impact of COVID, we felt it was time to remind everyone of the broader growth strategy for Boot Barn and our positioning. Historically, Boot Barn had focused heavily on the Western customer, and led with our signature category of boots. We were then and continue to be the leading player serving a sizable market. Approximately four years ago, we embarked on a three-pronged strategy to expand our addressable market, which included the following components. First, we sought to expand the brand's reach. We focused intently on growing the work segment, as well as adding new segments, including the more fashion-forward Wonderwest category and more recently Just Country, which encapsulates a much larger share of the US population. This expansion strategy has introduced new customers to market segments that are not too far removed from Boot Barn's core Western customer. We also shifted our media mix to marketing channels intended to broadcast to a larger population such as television, radio and digital to drive awareness of Boot Barn. We believe this work contributed to expanding the customer reach of Boot Barn, as evidenced by our continuous growth in customers on a comp store basis over this period of time. The second piece of the strategy was to contemporize the Boot Barn brand. We made transformative changes to the creative aesthetic of our brand and our marketing communications. We shifted the focus away from product and price promotion and focused exclusively on building the strength of the Boot Barn brand, to resonate with both its legacy Western customers and the broader cross-section of the population that we were seeking to add that may have some affinity for our merchandise, but don't identify as purely a western lifestyle customer. We broadened our merchandise assortment, remodeled many stores, and upgraded in-store merchandising significantly. Today, we have successfully transformed from what many thought was simply a footwear retailer to a true lifestyle brand. Upgrading and modernizing the brand has played a critical role in enabling us to become more relevant to more customers that are immediately adjacent to our original core customer that may have been unlikely to shop in a pure western retail store. As for the final piece of the strategy, in order to ensure that we would be relevant to all of our customers, both existing and new, we created an extremely well-defined customer segmentation strategy. We speak to our more than 4 million active customers with e-mail, direct mail, and digital communications, that are tailored to them based on their demographics and purchase history. This enables us to speak to each customer group in their language and with relevant merchandise offerings. This was a critical piece of the puzzle, as we needed to ensure we were not at risk of alienating our core Western customer in our desire to expand the addressable market. Fortunately, we have successfully achieved both objectives, adding new customers while remaining highly relevant to our original Western customer. As we analyze and evaluate our recent business, we recognize there are some external macro factors providing a tailwind to growth. That said, we believe that the successful execution of this three-pronged growth strategy has enabled us to generate outsized growth in same-store sales and to enter markets with new stores that are not traditionally Western. Further, as concerts, rodeo and events begin to take hold, we are confident that our strategy will position us well to capture more share from an even larger and broader addressable market. With this recap of our growth strategy serving as context, I will now provide an update on each of our four strategic initiatives beginning with driving same-store sales growth. During the first quarter, we saw very healthy sales growth across our stores business. As discussed on our last earnings call, total sales in our retail stores during April and the first half of May were very strong, growing 65% when compared to the same period two years ago. Total sales in our stores maintained this strong growth throughout the remainder of the quarter and finished the quarter up 66% when compared to the same period two years ago. From a geographic standpoint, the growth was broad-based with every store district posting solid double-digit same-store sales growth as compared to the first quarter two years ago. While each of our three regions were extremely strong, the growth in our West region outpaced the growth in the North and South. From a merchandise perspective on a two-year basis, we saw broad-based growth across our major merchandise categories, with double-digit growth in work boots, men's and ladies' western apparel, men's and ladies' western boots, hats and non-flame resistant work apparel. FR work apparel was the only category that declined when compared to the same period two years ago. Our customers are increasingly outside working, participating in recreational activities and returning to outdoor events and are looking to Boot Barn to get appropriately outfitted. From a marketing perspective, our creative team continues to enhance our brand aesthetic across all media and communication channels. Our marketing strategy has proven to be successful in drawing new customers, and we believe the addition of these customers will continue to help drive sales growth and increased traffic while furthering our brand awareness across the country. From an operational perspective, our store associates along with our field leadership team were able to ensure that our stores were adequately staffed in order to handle the increased number of transactions during the quarter. In fact, Boot Barn's relatively low turnover at the store manager level has enabled us to rise to the challenge of the surge in sales and maintain our standard for customer service. I am proud of the store operations team for providing the necessary training and support to our store associates to both meet the growing demand in stores and efficiently fulfill omnichannel orders such as buy online pickup in-store and in-store fulfillment. Our field team has continued to provide excellent service to our customers and are grateful for their ongoing commitment to growing the Boot Barn brand. There has been a great deal of dialogue surrounding supply chain challenges across the retail landscape, resulting in difficulty in securing merchandise and increased freight costs. While we have seen some of these issues as well, we have managed to mitigate the impact of the challenges on the business significantly. We have now improved our inventory position to flat on a comp store basis relative to last year, which was the result of a tremendous amount of hard work by the merchandising and supply chain teams, particularly in light of the extremely strong sales we have been experiencing. And while freight costs continue to increase, our ability to leverage our store base for e-commerce orders has dampened the impact of increasing inbound freight costs. Moving to our second initiative, strengthening our omnichannel leadership. Compared with the first quarter two years ago, total e-commerce sales grew 56%, and our efforts to increase the profitability of this channel continue to show significant growth on a two-year basis. The bootbarn.com business continues to be our best performing site, with total sales growth of more than 100% compared to the same period two years ago. While not as strong as the bootbarn.com business, the balance of our e-commerce sales also exhibited strong double-digit growth compared to the same period two years ago. Underpinning our leasing performance are the omnichannel initiatives we have implemented over the past two years, including buy online pickup in-store, curbside pickup, same-day delivery, and buy online return in-store. During the first quarter, we invested further in our in-store fulfillment initiative and have seen strong customer reception to this offering. Making the stores' inventory available to our e-commerce customers has had a meaningful impact on our e-commerce growth. This new ability to ship online orders from our stores has had the added benefit of increasing exclusive brand penetration online, adding further to our ability to expand merchandise margin. We believe our omnichannel initiatives are driving increased traffic to our stores, helping to reduce shipping costs and improving loyalty with our customers as we encourage them to shop Boot Barn both in-store and online. Now to our third strategic initiative, exclusive brands. Our exclusive brands performed incredibly well during the first quarter, increasing to 26.3% of net sales, a gain of approximately 650 basis points compared to the same period two years ago. We are very pleased with the accelerated growth in this portion of the business and the performance of each of our exclusive product lines. Cody James, Cheyenne, Hawx and Idyllwind fueled by Miranda Lambert continue to be in our top 10 selling brands in the store. We are proud of this achievement and the brand recognition we have built over the years with our exclusive merchandise. Given the supply chain issues across retail today, we are also fortunate that we've been able to rely on our exclusive brand supply chain to meet the surge in demand. Finally, our fourth initiative is expanding our store base. During the first quarter, we opened three new stores bringing our total store count to 276 stores across 36 states. Our new store openings continue to perform very well, and are expected to pay back within our targeted three-year period or better. We expect to open 27 stores in the current fiscal year as originally planned. I'm really pleased with the work our real estate team is doing, and I'm very encouraged about the new store pipeline for the balance of this year, as well as for the beginning of next fiscal year. Based on our current momentum, we expect to be well positioned to grow 10% in new units or more in our next fiscal year. I'd now like to provide an update on current business. Our second quarter has continued the strength that we have seen during the last several months with stores and e-commerce generating strong sales. When compared to the same period two years ago, total sales in the first five weeks of our second quarter increased approximately 65%. Consolidated same-store sales through the first five weeks of our second quarter increased 52.4%, when compared to the same period two years ago. To recap the turn of the business, we have seen consistent strength in demand, with nearly every week over the past 20 weeks exceeding 60% growth in sales versus two years ago, coupled with solid growth in merchandise margin. I'd like to now turn the call over to Greg Hackman.

Thank you, Jim. Good afternoon, everyone. In the first quarter, net sales increased 64.9% to $306 million compared to the two-year ago period. Consolidated same-store sales increased 52.3%, with retail store sales up 51.7%, and e-commerce same-store sales, up 55.8%. The increase in net sales was primarily a result of the increase in same-store sales and the incremental sales from new stores opened over the past 24 months. Gross profit increased 87.3% to $116.4 million, or 38% of sales compared to gross profit of $62.2 million, or 33.5% of sales in the two-year ago period. The 450 basis point increase in gross profit rate resulted from a 220 basis point increase in merchandise margin rate, and 230 basis points of leverage in buying and occupancy costs. The merchandise margin rate increase was primarily a result of better full-price selling and growth in exclusive brand penetration. Operating expense for the quarter was $62.8 million, or 20.5% of sales, compared to $46.1 million, or 24.8% of sales in the two-year ago period. Operating expense increased, primarily as a result of higher store payroll and overhead, in addition to an increase in incentive-based compensation. Operating expense as a percentage of sales decreased 430 basis points, primarily as a result of expense leverage on higher sales. Income from operations was $53.6 million, or 17.5% of sales in the quarter, compared to $16.1 million, or 8.6% of sales in the two-year ago period. Net income was $40.6 million, or $1.35 for diluted share, compared to $9.7 million, or $0.33 per diluted share in the two-year ago period. Excluding the $0.09 tax benefit in the current year period, and the $0.01 tax benefit in the two-year ago period, net income per diluted share in the current year period was $1.26, compared to $0.32 in the two-year ago period. Turning to the balance sheet. Inventory was flat on a comp store basis compared to last year, and down 2% compared to the same period two years ago. On a consolidated basis, inventory increased 13.5% over the prior year period to $297 million. This increase was primarily driven by inventory held at both our Wichita and Fontana distribution centers and inventory for new stores added in the past 12 months. During the first quarter, we prepaid $61.5 million on our term loan, resulting in a total of $50 million of debt outstanding with zero drawn on our $165 million line of credit. We had $49.6 million of cash on hand at the end of the quarter. Subsequent to the end of the quarter, we expanded our revolving line of credit to $118 million. While we are pleased with the underlying strength of the business, given the limited visibility into the macroeconomic environment, we will continue to only provide select full year fiscal 2022 guidance at this time. We reiterate our previously provided guidance to grow units 10%, continue to expect capital expenditures to be in the range of $33 million to $36 million, and estimate our full year effective tax rate to be 26%. Additionally, we now expect exclusive brand penetration growth of 350 basis points in fiscal 2022, which represents an increase from our prior outlook of 250 basis points. Now I'd like to turn the call back to Jim for some closing remarks.

Thanks, Greg. I am very pleased with the strong start to fiscal 2022, and it is exciting to see the organization continue to deliver on our four strategic priorities. I'm truly honored to work with such an incredible team. Now I would like to open the call to take your questions. Holly?

Thank you very much. Our first question today will come from Matthew Boss with JP Morgan.

Great, thanks. And congrats on a really nice quarter again, guys.

Thanks, Matt.

So, Jim, on the consistency of the top line momentum that you walked through July holding 65% above fiscal '20, are you seeing return trips from new customers that you acquired during the pandemic? And I guess I'm trying to think on the other side of this crisis, where do you see the largest sustainable market share opportunity, if we think maybe by category in terms of where you're benefiting, but what's sustainable, whereas the model substantially better on the other side?

I believe we have experienced a significant increase in our addressable market. We are capturing market share from smaller retailers, and we have attracted a larger number of customers who now consider Boot Barn as a shopping option for their merchandise, apparel, and footwear. This trend seems to be ongoing, with an influx of new customers while retaining our existing ones, which means we’re now serving a larger customer base. This growth appears to be sustainable. Moving forward, we will focus on improving shopping frequency among our increasing customer base. If we can boost both the number of customers and their shopping frequency, we could drive even greater sales growth in the future.

Great. And then maybe a follow-up on the margin front. As we think about gross margin, first quarter comes in 450 basis points above your pre-pandemic base. I guess, how best to think about the progression of gross margin? Maybe just puts and takes, as we think about the second quarter back half. And just overall gross margin opportunity, do you think the model is over earning today, anything we have to give back, or how best to just think about long-term gross margin based on what you're seeing today?

Sure. Matt, it's Greg. From a puts and takes perspective, we've seen nice merchandise margin improvement, what I would describe as on a pure market basis. Right. So we've continued to be less promotional. Our inventories are much cleaner, so we have less clearance. And I expect that to continue for the foreseeable future. We felt some freight pressure in Q1, and I expect that to continue, and it might even be a bigger drag or headwind to gross profit. Having said that, I do have confidence that we'll be able to offset that. We won't go backwards in terms of merchandise margin that the IMU, and the other things we're doing will continue to offset that freight headwind. In terms of, kind of buying occupancy and DC cost leverage, and some leverage in the distribution center, and in the buying line, and in occupancy we're seeing nice leverage at the growth that we're having. Obviously, if that growth slows, I think we'll get less leverage out of the occupancy line, and that's especially true as we continue to progress with adding new stores throughout the year. Having said that, we still would expect to see some nice leverage. So those are kind of the puts and takes, as I think about gross profit.

Great. Congrats, again. Best of luck.

Thanks, Matt.

Thanks, Matt.

Thank you. And next we'll hear from Max Rakhlenko with Cowen and Company.

Great. Thanks a lot, guys, and congrats on a really nice quarter. So, when we think about the massive quarter-to-date trends, what do you attribute that? Your momentum is significantly above many industry peers. Obviously, the consumer is in really strong shape, and there's a lot of pent-up demand, but it looks as though the market share that you're taking is really outsized compared to others out there?

Well, we appreciate that commentary, Max, thank you. I think there's a few things going on. And we always start with the macro, that's certainly the type of demand and there is a lot of money flowing through the economy. And that said, I think we have just been able to pull a number of things together. We've expanded the view of Boot Barn to include additional customer segments, we've targeted them aggressively. At the same time, the consumer trend was helping us, right. People are getting outside more often. They were looking for products that we carry to go hiking in, go camping in, or just to go to some of the concerts and rodeos that are now just starting back up. So I think it's been the overused expression perhaps of the virtuous cycle. We've upgraded our branding. We've expanded the merchandise assortment. We took market share. We believe last year, because we were able to keep our stores open as an essential retailer. And we just have kind of been able to hold on to these new customers and not relinquish them back. And so I think it's all those things working well in concert, right, merchandising, marketing, store operations. We're sending more customers to our stores through our e-commerce channel. And as those things work together, we've seen sort of a synergistic effect.

Got it. That's very helpful. And you previously commented on improving the exclusive brand penetration online. How big of an opportunity do you think that is? And is there a world where that mix gets pretty close to what you have in stores, or will it always trail the in-store exclusive brand mix? Thank you.

Sure. So, I think we are on record in the past of saying that, historically, exclusive brands have penetrated, roughly 30% in stores, and roughly 10% online. As soon as we opened up in-store fulfillment, the exclusive brand penetration online nearly doubled. So, it's meaningful. Now, if you think about e-commerce as a percentage of our business and exclusive brands growing by 8 points or 10 points of penetration online, and then you multiply that with a margin rate, when you put it all together, it's not a massive growth of merchandise margin percent or dollars, but it does add a bit to the rate that we can achieve. And the second part of your question, I don't think we'll get online penetration to the point where the stores are simply because we offer a lot more product, a broader assortment, and in some cases more brands online than we do in the stores. And nor do we have the ability to as easily sort of showcase the features and functions of the exclusive brands as we do in the stores using the fixturing, or special merchandising or the store associates as brand ambassadors, et cetera. With that said, it's nice that that gap has closed considerably on what amounted to be a relatively simple change. Technically, it took some time, but we didn't have to move mountains or invest millions of dollars in capital to make that happen.

Great. Thanks a lot. Best regards.

Thank you.

Thank you. And our next question will come from Jonathan Komp with Baird.

Yeah. Great, thank you. First, maybe Jim, one clarification, if I could. I think you said you have more than 4 million customers in your active file. Can you maybe just comment, or that's looked like in the past and how that's grown over time?

I can. We've experienced strong growth over the past few years. The best way to consider this is by examining the growth in customers on a same-store basis. If we disregard the timeframe affected by COVID, we have maintained a solid track record of adding mid-single-digit growth in customers on a comparable store basis for about four years. If you're focusing on that 4 million figure, I believe the numbers are as follows: in fiscal '20, we had approximately 4.2 million total customers, and in fiscal '21, that number grew to 4.7 million. Personally, I always refer back to the number of customers we have on a same-store basis and how much of our increase in same-store sales is linked to the arrival of new customers.

Okay, great. And then maybe a broader question on the demand you're seeing, I think if we go back to April or May, there was a view that a lot of the strength at the time was driven by the macro picture. And I'm curious what you make now to see the consistency in the weekly performance, what your sense is that's driving that. Are you seeing as we move further beyond the stimulus in March? Are you seeing fashion trends pick up stronger? Are you seeing things like the Cheyenne Frontier Days, or other events start to impact your business or any more color on your thoughts there?

Sure. You're right. I mean, we weren't exactly sure what to expect, and there was certainly a thesis that was logical that the business couldn't have maintained at the same 65%, and we've been very pleasantly surprised that it's continued to grow as it has. Underlying, there are a couple of things that make us feel pretty positive about the outlook going forward. Number one, it's not being helped by oil markets, right. In fact, places like West Texas are still a lag or a drag on our same-store sales. So we've been able to put these numbers despite a softness in some of those markets or relative softness, and despite the fact that FR work apparel is negative. On a more positive note, we started to see emerging over the last few weeks an even stronger ladies' apparel business and the over-indexed growth in ladies' Western Boots. And if you went back through the last few years of our earnings calls, we had been talking about softness in a down-trending ladies cowboy boot business for quite some time. And now everything is growing essentially, but ladies' boots are growing at a higher rate than the rest of the company, which does lead us to believe that as concerts and rodeo start to come back online. We are extremely well positioned in those categories to maximize growth. You mentioned Cheyenne Frontier Days, and it's a relatively big event. It's not nearly the same driver of demand as the Texas rodeo is that hit our fourth quarter. But if we do view the event as a bellwether for sort of the health of our customer, in our pop-up store that we put up during the event, we had record sales this year versus any other year up, 50-plus percent versus two years ago. And that again, it's not very meaningful in our total sales for the quarter or for the month, but if it is a view into underlying consumer trend, it was an extremely strong read. And so that coupled with the fact that Garth Brooks and George Strait are touring again, there's a lot of reasons to feel bullish about the business going forward.

Yeah, great. And just lastly, if I could, Greg, if I look back in your model at EBIT margin percent, typically, first and second quarter have been pretty similar and then you see a step-up in the seasonally higher third quarter. Any thoughts or factors we should consider thinking about this year? And that's it from me. Thanks.

Yeah. Good question, John. Q2, typically does look like Q1, in terms of volumes. So part of what will drive operating margin in Q2 is what happens to the sales. As we've just described, it's been incredibly consistent. If I think about unique things to Q2, the things I'd call out are we're trying to add more hours back into the stores. Jim touched on this in his prepared remarks, that the stores team is doing a really great job of providing great customer service and the sales line is very healthy. So I think we're not losing sales. Having said that, we have a sales flex model that we use to try to add back hours and we haven't been able to use all those hours. So we're trying very hard to continue to hire up so that we can provide outstanding customer service to our customers. That's one thing. The second thing is, we've gotten really nice leverage in marketing, especially in Q1, as the sales continue to rise at a high level. We're trying to return to our 3% of sales historic spend in stores. I don't think we'll get that done in Q2, but we're working towards investing some marketing dollars with smaller things, we've got a physical inventory in Q2. We have some other things going on, but on balance, I would say, given the sales line, you could see a somewhat similar profile. That said, we're not targeting a 17.5% EBIT rate in Q2.

Okay, thank you.

Thank you. And next we'll hear from Steven Zaccone with Citigroup.

Great. Thank you for taking my question, and congrats on the momentum in the business, guys.

Thank you.

Question about inflation trends more broadly in retail. You referenced higher freight costs that you're seeing in the business. Presumably, you're taking price up on products. Have you seen any push-back from the consumer in response to price increases? And I guess more broadly what have you noticed in the competitive environment in terms of pricing?

Steve, it's Greg. We have seen a handful of our vendors raise prices in the first quarter. And as you just described, we passed that price increase along to the customer with our normal markup, right. So we maintained our IMU and increased the price, the retail price to the consumer. And as we've looked at the demand for that product, in terms of units coming into and coming out of the price change, we don't really see a change in the demand. So, it reinforces our belief that our consumer can tolerate a price increase. They typically need the product or want the product and will accept the price increase. So as we look further out, we've heard from other vendors, if there might be price increases this fall, or at the beginning of next year, and again I think that what we've seen in the first quarter gives us confidence that we can continue to pass along the price increase to the consumer and that feels heard on the demand line or in sales. As it relates to exclusive brands, the teams have done a really nice job of mitigating most of those price pressures. We do see some increased freight on our EV product, and we'll selectively increase pricing probably on some of that product, again given the backdrop of what we saw in Q1.

Great. Thanks for that. And then I just wanted to follow up on, could you speak a bit more to trends you're seeing in oil and gas regions. I know you cited FR comp negative in the first quarter. Have you seen any improvement there thus far in the second quarter just given the price of oil. I assume rig activity is probably up.

We have noticed a slight sequential improvement in FR during the second quarter. However, it is still somewhat holding back our overall sales growth. While this may seem overly optimistic, we believe there are future opportunities for continued growth as we anticipate that the oil sector will keep gaining strength. The rig count has been increasing slightly each month, and we expect this area to contribute positively going forward rather than hinder our performance. That said, we have experienced some softness in those markets for several months. Our sales have been very strong, but this may finally affect us due to the reputation our business has for relying on the strength of the oil markets, though we will have to wait and see.

Yeah. Thanks for that. Okay, take care, guys.

Thanks, Steve.

Thank you. And next we'll take a question from Janine Stichter with Jefferies.

Hey, congrats on the incredible momentum. Want to ask about your store count potential. I think you have spoken to 500-plus stores in the past. Now that you're getting these new customers who are kind of outside of your core Western customer. How do you think about the potential for maybe a greater number of stores? And then maybe speak to what you're seeing in some of your new markets. Thank you.

Sure. By the end of the year, when we provide our guidance for the next fiscal year, we plan to quantify our analysis as we did several years ago to estimate the size of the addressable market and the number of stores we believe we can build. Overall, we feel quite optimistic about both the size of the total addressable market and the potential number of stores we could establish nationwide. Regarding your second question, we've had excellent results from our new store openings. The new stores in emerging Boot Barn markets have performed well, even those that launched during the peak of the pandemic. Additionally, newer locations in what we previously considered established markets are also doing exceptionally well. For instance, we opened stores in Weatherford, Texas, and Visalia, California, and have launched several stores in Phoenix, a market we thought was already saturated a few years back, and we're continuing to expand there. When you consider all these factors, it supports our belief that our target of 500 stores is conservative. Furthermore, as we broaden our target customer base beyond just the core Western demographic to include sectors like vibrant work business and the Wonderwest and Just Country customers, we believe the $20 billion total addressable market figure is also understated. We have a robust business with strong momentum and are very optimistic about future opportunities, especially given the positive changes we've implemented and the traction we're starting to see.

Okay. Thanks for the color. And then just a follow-up on the inventory flat versus on a per store basis, understanding that there are constraints on how much you can get. Optimally, how do you plan your inventory? I know it's challenging with the business tracking up 60%. But if you had your way, how would you be planning your inventory levels? And maybe speak to any of the constraints you're seeing any particular categories that are more challenging than others? Thank you.

So I think, if we look at our current inventory levels, we have already said a total fee on a total basis, we're in pretty decent shape. And frankly, we'd probably like to have a little bit more, our business has just been so strong. And in certain pockets of the store, you will see certain areas that are a little bit late, like ladies apparel is one of them maybe cowboy boots is another. And both of those businesses are really growing quite nicely. So, given the current trend, we'd love to have our inventory levels be up a little bit more, not just flat. One thing that's helped us a little, if I'm honest is, we call out flat inventory on a comp basis year-over-year. We have much less clearance merchandise than we did last year. So our full priced inventory is actually up slightly year-over-year on a comp basis. That said, we'd still look to add some product in some key categories, and buy more on the ladies side than on the men's side. And we're continuing to hustle to bring that product in. And we've had mixed results from our vendors. Some vendors we made some kind of bulk purchases and we talked about this on the last call and inventory did ourselves, others are flowing goods nicely and candidly the best supplier that we have right now is our exclusive brands. So while we want all of our vendor partners to participate in the growth, when there is a void or sort of a euphemistically an open slot on boot shelf, we're able to get our own product, our own exclusive brands product on that in the stores. And fortunately that supply chain has continued to work extremely well, all things considered during the pandemic and during all the other supply chain challenges. So hats off to the team that is managing exclusive brands for continuing their flow goods. And we're fortunate that as a company structurally, we only turn roughly twice a year. So we're not at a big risk of running out of product any time soon. But on balance, we'd love to have some more merchandise.

Great. Thanks very much.

Thank you.

Thank you. And next we'll hear from Dylan Carden with William Blair.

Awesome. Thank you. I'm just curious just a handful ones here. I guess, first, maybe starting with the frequency you mentioned, then that the ultimate goal here is to not only grow the customer base, but then grow frequency. I mean are you seeing that already some of these sort of new customers, new to brand customers? And I guess maybe sort of an embedded question there is, of the customers you acquired in the last year, how many are kind of coming back to the brand or even shopping sort of across different categories?

We believe we are effectively attracting and retaining customers, and we are starting to see them return. I don't have a precise statistic to share at this moment, but we are noticing that these customers are exploring various parts of our business. Some of our long-time customers are now purchasing items at Boot Barn that they previously viewed only as Western cowboy boots. They are now interested in hiking boots, jeans, t-shirts, and baseball hats, and we are meeting those needs. We are beginning to introduce new merchandise more frequently and adjusting our marketing strategy to encourage customers who typically shop with us just twice a year to visit us more often. We plan to provide more detailed statistics once we observe a more stabilized view of our business over the next few quarters, moving past the unusual conditions created by the COVID era and then a significant sales growth period. However, we are confident that we have increased our customer count, and we believe that shopping frequency is on the rise. Our new focus is to encourage customers to visit our stores more regularly and to increase their overall spending with us.

Great. And I'm curious, the new store format, you're kind of trailing out in California, is it too early days to kind of speak to that, or what the strategy might be there, if there are maybe some markets that get unlocked to you that you otherwise thought were inaccessible mature your legacy offering? And kind of a follow-on question would be your confidence level in hitting that kind of 10% store growth this year, even I think mentioned that it could be above that. Going back to 2017, that's been a target, but not necessarily a reality. I'm just kind of curious what you're seeing in the real estate market or acquisition market that might sort of drive some of that commentary.

Yeah. So, on the second point I think our level of confidence for this year is pretty strong.

95% confidence.

Greg mentioned having a 95% confidence level. We have outlined the cadence, indicating 3, 5, and 7, with the remaining achievements expected in Q4. The confidence level is quite high. Regarding the store we built near our office, we are cautious about labeling it a new prototype or a significant departure from our previous designs. It is more aesthetically appealing and doesn't resemble the stores that were opened five or ten years ago as much. If you visit some of our new stores on the East Coast, you'll notice they are slightly more refined in appearance and less strictly western. This is part of our strategy to broaden our appeal a bit. It does not represent a drastic shift; we are still focused on what has made Boot Barn successful over the years. We have demonstrated our ability to maintain loyalty with our core Western customers while also creating a welcoming atmosphere for customers who may not wear traditional western attire regularly. The store near our corporate office is just a bit more elevated compared to some of our other new locations. We will incorporate elements of this into our future store designs. However, I don't want to suggest that this represents a drastic change for Boot Barn or a major strategic alteration, because it does not.

No, that's interesting. And so I guess as you're going into these new markets and you're seeing these sort of better than historic performance in these new even during the pandemic, do you kind of view some of that related to these efforts to kind of, I guess are these new markets driven than your legacy markets and that, that has been a benefit as you sort of pick and choose which elements of that to put in these stores?

I would say, so if we look at, I'll just give you real examples. We opened the store in Weatherford and Visalia, as Weatherford, Texas; Visalia, California; Erie, Pennsylvania, those three stores are roughly similar to each other and slightly more elevated in different than stores that opened 10 years ago, but still not quite the store that you're alluding to here in Orange County. So there we haven't tried to come up with something that's massively different for the East Coast. By downplaying a little bit the pure western customer, we've made it a little bit more accessible to a broader group of customers. Now, by the way, that said, once if we've referenced in on past calls is those new markets, Pennsylvania, Ohio, etc., are still heavily skewed in their sales towards Western, whereas much as Colorado or Arizona. So it's not like we're selling a whole different set of products. We still have a really strong mix of that it looks like we're also getting perhaps a broader, sort of soft clientele of the market in the surrounding areas.

And that's great. Thanks. I appreciate it.

Excellent. Thank you.

Thank you. And our next question will come from Sam Poser with Williams Trading.

Thank you very much for taking my questions. I have a question for you guys. Do you want the easy one of the hard one first? The hard one's not about inventory levels.

If you do both going to be about inventory.

All right. So

We'll take those.

Thank you. Can you provide details on your new store productivity, how many stores were closed last year, and which stores are being compared? It seems this has affected the street numbers for your comparable sales, and I don't have an accurate apples-to-apples figure. What is the new store productivity? Additionally, if all stores had been open last year including the zero stores, what would the comparable sales figure be? Does that make sense?

Sam, it's Greg. We haven't provided a one-year figure in our discussions. There will be a one-year number included in our 10-K filing as required by the SEC. However, everything we've discussed regarding the total sales increase of 65 and the same-store sales growth of 52% is based on a two-year comparison, which compares to two years ago and accounts for the disruptions from store closures during the COVID period. I apologize, we do mention a one-year comparison on Page 2 of the press release, but our comments generally don't focus on that because the full year was impacted by COVID closures.

No, I understand the situation. However, the important question is what does the 78% number represent if everything is compared consistently? That’s what we need to clarify. The comparison made by the Street, which projected a 90 percent comparable sales figure, contrasts with the 78 percent that was reported. Despite everything being accurate, the numbers do not align with the 78. Our goal is simply to find consistency in the numbers. We fully grasp the business dynamics; it's just about clarifying what that number really is.

I guess you'd have to look at our Q1 filing from last year, and then you look at total sales and then you'd use the stores penetration to come up with a total sales number in Q1 for stores and you've got the total sales for Q1 this year, that's not necessarily on a comp basis, but we opened 15 stores over the past year and you could back into a number. In terms of new store productivity, we model at $1,000,007, and it's probably 10% higher than that, or maybe 20% higher than that, it's not 50% higher than that.

So an existing store generated $100 in Q1, while a new store might generate 50, 80, or 300.

Call it 80% or 85% probably.

Okay, I'll move on from that. There's no inventory to discuss. The next question concerns several other inquiries. You mentioned that women's western and women's apparel are performing very well. Is this due to more fashion-forward women coming in to purchase western boots and other items? Are they bringing others with them and returning to buy for their family? What insights are you gaining about this segment of your business, especially considering your inventory levels are quite low due to high demand?

I believe that pent-up demand for concerts and events is finally making a comeback. Over the past 20 weeks, our business has performed strongly, although it hasn't yet been influenced by concerts and rodeos. I think that the majority of this is still to come. When people prepare for concerts, they are likely to buy new cowboy boots and outfits. I won’t disclose specific data about whether they are purchasing for others or bringing additional people along.

We're hearing from fashion brands that Western styles are gaining popularity, and most of these brands are not particularly focused on rodeos. So the question is, are you noticing the same trend without rodeos being a driving factor?

Yeah. Buffers, very big, clever fund there. And I think so, I mean look, I think it is topical, I would not want to leave the impression that our business is so strong, because of some sort of trend that we're seeing in some of these other brands, including some quick tour brands. I mean our business is strong from work boots to men's, western to cowboy boots to men's and ladies, and cowboy hats just about everything is very solid, strong double-digit growth and what we're calling out is, particularly on the ladies boot side. That is one, that is over-indexed in the last few weeks not in the quarter, and has been one that for the last several quarters or few years even ladies boots has never been that remarkable for us and away from the gross perspective.

Okay. All right, well. Thank you guys very much. Continued success.

Thanks, Sam.

Thank you. And our last question today will come from Peter Keith with Piper Sandler.

Hey, good afternoon.

Hi, Peter.

Bobby Friedner on for Peter. Thanks so much, guys. It looks like to be pretty large infrastructure bill going because we passed in Congress. I'm wondering if you could discuss how previous infrastructure programs have impacted demand trends and what you might expect it turnaround?

Clearly, any increase in employment, blue collar employment and infrastructure is a good or a great thing for us. I can't quantify for you what that would look like. What we're not banking on that as part of our future growth, but it would just be a potential, another tailwind to top line growth. And it does tend to drive the work boot business, work apparel business, denim both work and western, and so it would be, it would just be another great add to the business that's been experiencing some really strong growth anyway.

Okay, great. Thanks for the color. And just one quick other one. So the Delta variant more pronounced in some parts of countries. If you've had any impact on store traffic in any of your markets?

It's of course unfortunate to see some of this recent surge. Our business has just been unbelievably consistent across the country. Regardless of market, regardless of delta variant, and yeah, what we like everybody hope is that this goes away pretty balanced, or at least gets mitigated, but it hasn't had an impact on business, and it has just been phenomenal.

All right, great. Thanks. Appreciate it.

Thanks, Bobby.

Thank you. And that does conclude our conference for today. We thank you for your participation.