Good day, everyone, and welcome to the Boot Barn Holdings Third Quarter 2024 Earnings Call. As a reminder, this call is being recorded. Now I'd like to turn the conference over to your host, Mr. Mark Dedovesh, Senior Vice President of Financial Planning. Please go ahead, sir.

Thank you. Good afternoon, everyone. Thank you for joining us today to discuss Boot Barn's third quarter fiscal 2024 earnings results. With me on today's call are Jim Conroy, President and Chief Executive Officer, and Jim Watkins, Chief Financial Officer. A copy of today's press release along with a supplemental financial presentation is available on the Investor Relations section of Boot Barn's website at bootbarn.com. Shortly after we end this call, a recording of the call will be available as a replay for 30 days on the Investor Relations section of the company's website. I would like to remind you that certain statements we will make in this presentation are forward-looking statements. These forward-looking statements reflect Boot Barn's judgment and analysis only as of today, and actual results may differ materially from current expectations based on a number of factors affecting Boot Barn's business. Accordingly, you should not place undue reliance on these forward-looking statements. For a more thorough discussion of the risks and uncertainties associated with the forward-looking statements to be made during this conference call and webcast, we refer you to the disclaimer regarding forward-looking statements that is included in our third quarter fiscal 2024 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, Mark, and good afternoon. Thank you, everyone, for joining us. On this call, I will review our third quarter fiscal 2024 results, discuss the progress we have made across each of our four strategic initiatives, and provide an update on current business. Following my remarks, Jim Watkins will review our financial performance in more detail and then we will open the call up for questions. We are pleased with our third quarter results, which marks the highest sales volume in Boot Barn's history. During the quarter, total sales grew by 1.1% driven by the 49 new stores added over the last 12 months. It's worth noting that except for three COVID-impacted quarters, we have grown sales on a year-over-year basis every quarter since we went public nearly 10 years ago. The incremental revenue from new stores was partially offset by a 9.7% decline in same-store sales. To put this performance in perspective, our third quarter sales are up 83% from pre-pandemic levels with our same-store sales up almost 50% on a four-year stack basis over that same period. Additionally, we achieved 300 basis points of merchandise margin expansion during the quarter, comprised of 250 basis points of freight improvement and 50 basis points of product margin expansion. The growth in product margin was driven by more than 300 basis points increase in exclusive brand penetration, a reduced level of promotional activity, and buying economies of scale. The strength in sales and gross margin combined with solid expense control drove a 30 basis point increase in operating margin and earnings per diluted share of $1.81 during the quarter, up from $1.74 a year ago, and more than double our earnings per share in the same quarter pre-pandemic. We believe this demonstrates the ability of the Boot Barn model to utilize multiple levers to drive earnings growth and the team's ability to execute at a high level. As we approach the last two months of fiscal 2024 and prepare for 2025, we will maintain our focus on executing against our four strategic initiatives. I'd like to spend a few minutes providing an update on each of them beginning with expanding our store base. With 382 stores today, we're the largest player in the Western and work wear industry. In the quarter, we added 11 new stores as we expand our footprint across the country. As a reminder, we typically underwrite the investment in a new store expecting revenue of approximately $2 million with a two to three-year payback. The performance of the most recent 100 new stores has been considerably better than this model with new store revenue projected to generate more than $3 million on average or 50% higher than the typical investment thesis with an accelerated payback of approximately 18 months. And if we view this on a shorter timeline, the most recent 45 stores that have been opened one full calendar year, opening before December 2022, have generated approximately $3.3 million of annual revenue on average over the last 12 months. We believe that the combination of 15% new store openings, a 60% return on capital, and the opportunity to more than double our units is one of the strongest, most compelling growth stories in the retail industry. Moving to our second initiative, driving same-store sales growth. Our third quarter same-store sales declined 9.7% within the guidance range we outlined in November. The decline was driven by lower transactions, partially offset by higher average unit retail and transaction size. The more functional categories such as men's Western boots and apparel and work boots, while still negative mid-single-digit on a comp basis, outperformed the more discretionary ladies Western departments. Geographically, the West and North regions were slightly better than chain average and the South and East were slightly worse than chain average. As I reflect on our execution in the quarter, I'm very proud of the entire cross-functional team. The merchandising team managed inventory levels extremely well, improving product margin and constraining growth in clearance merchandise despite a nearly double-digit decline in same-store sales. The stores team also performed quite well as evidenced by earning the highest customer service scores for any holiday quarter in the history of Boot Barn. They also supported our omnichannel business by fulfilling more than 45% of our total e-commerce orders over the holiday period. Before moving on to the next strategic initiative, I do want to provide a bit of historical perspective to our recent same-store sales results. I think it is helpful to remember that our average store volume increased by more than 50% beginning in March of 2021, and has remained at elevated levels for nearly three full years now. On a year-to-date basis, our retail store and same-store sales have declined by approximately 6%, cycling plus 2% for the full year of fiscal '23 and plus 57% a year prior to that. Going forward, while same-store sales may continue to be negative for the near future, we believe it is unlikely that we will forfeit a significant portion of the higher average store sales volume. Similarly, when we look at our customer count metrics, we reached the same conclusion. The elevated level of average store volume that began a few years ago was a result of a nearly 50% growth in new customers in a comp store and most of those customers became repeat purchasers. These two statistics give us confidence and our belief that we will likely maintain most of the elevated sales and an average store going forward. Moving to our third initiative, strengthening our omnichannel leadership. In the third quarter, our e-commerce sales declined 11.5%. Our online channel has felt pressure due to less efficient online marketing spend, partly caused by an increase in digital spend by a handful of vendors and competitors. To add some more color, our Bootbarn.com business comped down low-single-digits in the quarter and approximately three-fourth of the decline was due to the erosion of paid demand. Our other two sites, Sheplers and Country Outfitters, are more dependent on paid traffic, so the erosion of paid demand has a significant impact on them. Our objective continues to be to maximize profitability for our online business, so we will remain disciplined with our digital spend so as not to erode earnings and our desire to grow the top-line sales. Operationally, we have improved our ability to fulfill demand from nearly all of our store and warehouse locations across the country. This enabled us to commit to a pre-Christmas delivery later in the season than ever before. Now to our fourth strategic initiative, exclusive brands. Exclusive brands penetration increased 310 basis points in the quarter to 37.3%. I'm pleased with this result, particularly as we were able to achieve healthy growth in penetration despite softness in our Ladies' business, which over-indexes to exclusive brands. In the quarter, we did launch a brand extension in approximately 50 stores, called Cody James Black, which targets a higher-end customer for men's cowboy boots and cowboy hats. While this will be a relatively small contributor to the overall exclusive brand business, we do feel great about the initial results and are in the process of extending the new assortment to 200 stores. Looking back over the last three years, we've expanded Exclusive Brands' penetration 1,400 basis points, far exceeding our historical goal of 250 basis points per year. This growth is a testament to the team's ability to develop world-class brands and compelling merchandise assortments. Turning to current business. Through the first four weeks of our fiscal fourth quarter, our preliminary consolidated same-store sales have declined 8.1% compared to the prior year period. On the surface, this is only a modest sequential improvement in our sales trend. However, we did see significant disruption in the business in the second and third week of the month due to a winter weather pattern that forced store closures, reduced operating hours, and presented significant travel challenges for customers. When we evaluate the business by region, the same-store sales trend in the South and West regions, which were less impacted by the weather, has improved sequentially from the prior quarter by more than 5 points of comp. Conversely, the North and East regions, which were impacted by the weather, have deteriorated sequentially from the third quarter by approximately 4 points of comp. While significant variability in weekly comp sales persists, we believe the underlying tone of the business has improved compared to the holiday quarter.

Thank you, Jim. In the third quarter, net sales rose by 1.1% to $520 million. Our sales performance was supported by new stores opened in the past year, although this was partially offset by a same-store sales decline of 9.7%, which includes a 9.4% drop in retail store same-store sales and an 11.5% decline in e-commerce same-store sales. Gross profit increased by 6% to $199 million, representing 38.3% of sales, compared to $188 million, or 36.5% of sales, in the same period last year. The 180 basis point rise in gross profit rate resulted from a 300 basis point increase in merchandise margin rate, partially offset by 120 basis points of deleverage in buying, occupancy, and distribution center costs. The increase in merchandise margin rate was credited to a 250 basis point improvement in freight expense as a percentage of sales and 50 basis points of product margin expansion. Selling, general, and administrative expenses for the quarter amounted to $124 million, accounting for 23.8% of sales, compared to $115 million, or 22.4% of sales, in the same period the previous year. The rise in SG&A expenses versus the prior year was mainly due to higher overhead and store payroll costs related to operating an additional 49 stores compared to the previous year. Income from operations was $75 million, or 14.4% of sales, in the quarter, compared to $72 million, or 14.1% of sales, in the comparable period last year. Net income stood at $56 million, equating to $1.81 per diluted share, compared to $53 million, or $1.74 per diluted share, from the prior year. Now, turning to the balance sheet. On a consolidated basis, inventory decreased by 5% year-over-year to $563 million and decreased by 1% on a same-store basis. We concluded the quarter with $107 million in cash and no amount drawn from our $250 million revolving line of credit. I would now like to provide an update on our guidance for the fourth quarter, which is detailed in our supplemental financial presentation. I will only speak to the high end of our guidance range in my following remarks. For the fourth quarter, we anticipate total sales to reach $386 million. We expect a same-store sales decline of 6.3%, with retail store same-store sales declining by 5.5% and e-commerce same-store sales decreasing by 13%. We plan to open 15 new stores, all scheduled for the second half of the quarter. It's important to note that this year's fourth quarter will consist of 13 weeks of sales, compared to 14 weeks last year. We expect fourth-quarter gross profit to be $136 million, about 35.2% of sales. This includes an estimated 160 basis point increase in merchandise margin rate, driven by a 140 basis point improvement in freight expense year-over-year and a 20 basis point growth in product margin. For product margin growth, we anticipate fourth quarter exclusive brand penetration to remain flat to down by 100 basis points when compared to last year. Last year's fourth quarter saw an increase of 770 basis points in exclusive brand penetration. The expected slowdown is primarily attributed to a softer ladies business, which has a higher rate of exclusive brand sales. We foresee 310 basis points of deleverage in buying, occupancy, and distribution center costs as we compare to a 15-week quarter last year. We expect income from operations to be $38 million, or 9.8% of sales, and earnings per diluted share to be $0.92. Given our year-to-date performance and updated estimates for the remainder of the year, we are revising our full-year guidance. For the entire fiscal year, we now project total sales to be $1.66 billion, reflecting a growth of 0.4% over fiscal '23, which was a 53-week year. This updates our previous guidance of $1.70 billion. We expect same-store sales to decline by 6.3%, with retail store same-store sales down by 5.5% and e-commerce same-store sales down by 11.7%. This is adjusted from our previous guidance of a consolidated same-store sales decline of 5%. We now anticipate gross profit to be $611 million, approximately 36.7% of sales, reflecting an estimated 170 basis point increase in merchandise margin, comprising a 130 basis point gain from freight expense and a 40 basis point increase from product margin. We expect 180 basis points of deleverage in buying, occupancy, and distribution center costs. Our exclusive brand penetration for the full year is now projected to grow by 370 basis points, reaching a total of 37.7%. We expect income from operations to be $198 million, or 11.9% of sales, and net income for fiscal '24 to be $146 million, with earnings per diluted share estimated at $4.75.

I'd now like to talk about our fiscal year 2025 that begins on March 31. While it is premature to fully outline our guidance for next year, we thought it would be helpful to share our thoughts on select components of the P&L as we get ready to begin our annual budget planning process. During fiscal year 2025, we again plan to open 15% new units and these new stores are expected to generate at least $3 million of sales during the first 12 months of business. We expect to achieve approximately 25 basis points of product margin expansion through exclusive brand penetration growth and better economies of scale with our vendor partners. Additionally, we expect to see a reduction in our overall supply chain costs that will benefit our merchandise margin beyond the 25 basis points of product margin expansion I just mentioned. These improvements are part of our larger efforts to manage expenses and drive efficiency in the business. As we look to SG&A expenses, we've outgrown our corporate office building in Irvine, California, which we first moved into in 2016. We signed a lease for a building nearby and we'll move during the third or fourth quarter of fiscal '25. The increased lease costs and associated depreciation will put some pressure on the SG&A line. We will provide more detailed financial projections on our May earnings call. Thank you, Jim. We are pleased with our ability to execute during the third quarter where we were able to grow sales and earnings despite a negative same-store sales results. Further, it is encouraging to see that there has been only modest decline in our average store sales volumes since the outsized increase that began in March of '21. I'm very proud of the team across the country. I want to thank you all for your dedication to Boot Barn. Now, I'd like to open the call to take your questions. Camilla?

Our first question will come from Matthew Boss with JPMorgan. Please go ahead with your question.

Thank you. To start, Jim, could you provide more details on the regional improvements in January sales compared to November and December, excluding weather factors, perhaps at a category level? Additionally, regarding the company's average unit volume, you've seen it rise from around $2.6 million before the pandemic to just over $4 million at its peak, and now we're just below $4 million. What do you anticipate as the sustainable average unit volume for the company moving forward, and what supports this structural improvement?

Sure. In response to your first question about sales by week in January, what we observed was that weeks one and four had mild weather, while weeks two and three experienced a winter storm affecting much of the country. The West region, including Arizona, California, Nevada, and nearby areas, and the South region, which comprises Texas and some other states, were less impacted by the weather, leading to a sequential business improvement of about 5 points from the holiday quarter. In contrast, our North and East regions faced challenges, with some stores closing early or not opening at all due to the conditions, resulting in a 4-point decline in comp sales from the third quarter. As I mentioned earlier, we believe the overall business outlook has improved since the holiday quarter. Regarding your second question about average unit volume, your estimate is quite close. Our previous figure was around $2.6 million, and if we look back five years, we were at $2.2 million, which has since grown significantly. Focusing on a consistent base of stores that were open in Q3 of fiscal '20, those 234 stores had an average unit volume of $2.9 million, which has now risen to $4.4 million. This represents over a 50% increase, specifically an increase of $1.5 million. If we consider the whole chain, we're still above $4 million in average unit volume. The primary driver of this growth has been a substantial increase in customer count over the past four to five years, aided by new store openings as well as a roughly 50% increase in customer count on a same-store basis. Overall, when evaluating our business over the long term, we see consistent growth. However, year-to-date, our retail stores are down roughly 6%. When we compare this to previous periods, we are pleased with that performance.

Got it. And then maybe for Jim Watkins, just on flow through in the model, could you elaborate on the magnitude of buying and occupancy and SG&A deleverage in the fourth quarter? And just how best to size up as we think multi-year, the magnitude of the supply chain efficiencies you cited, and how that may impact fixed cost leverage hurdles in the model moving forward?

Sure. Yes, as we look to the fourth quarter, you're right, given that 14-week period, we do have higher deleverage and so if I look to the high end of the guide and again I'd point you to the slide on Page 20, where we kind of go through the different components of that, that is 310 basis points of buying, occupancy, and distribution center deleverage during that fourth quarter. And then as we look to SG&A for the same period, the operating expenses, it's 340 basis points. And the one thing I would remind you on, particularly around the SG&A deleverage, it's a little more outsized and part of that is because of some unique factors that are working against us. Besides the negative same-store sales for the quarter and the 14-week period, you'll remember, last year in the fourth quarter, when we gave our report on that as our sales turned negative as we got out of January and went into February and they deteriorated a little bit more as we got into March, we pulled back on several expenses such as marketing and then we had reversed incentive-based compensation. And so those are things that create a little bit more deleverage as we get into the fourth quarter around SG&A. As far as the magnitude of the supply chain improvements that we're expecting to see as we get into next year, we'll give you more color on that and how they impact the leverage points, but the way I would model those out right now is around $6 million of an annual run rate in next year. And again, we'll give you more color on that as we look beyond, but that should be something that continues with us as we get into the years beyond fiscal '25.

Great. That's great color. Thanks again. Best of luck.

Thanks, Matt.

Thanks, Matt.

Thank you. Your next question comes from the line of Steven Zaccone with Citi. Please proceed with your question.

Great. Good afternoon. Thanks for taking my question. I wanted to follow up on Matt's question and maybe drill down on the preliminary commentary you gave about fiscal '25. You gave some details there, but I was curious how you think about the potential recovery in same-store sales, do you see that being transaction-driven? How do you think about that happening by category? Do you need the discretionary business to get a bit better? Any sort of commentary you gave would be appreciated.

Sure. As we consider the same-store sales forecast for the year, it's still early for us to provide specific guidance, which is why we aren't offering extensive commentary on it. Regarding the recovery, when we examine the components, the average unit retail suggests that many of the significant price increases are likely behind us. I expect a low-single-digit increase in average unit retail. Therefore, any recovery we anticipate as we move into next year is expected to be based on transaction volume.

From a category perspective, do you think that the discretionary segment, which has faced the most challenges, needs to stabilize, or could we see improvements at some point? How do you view that?

I believe it's a good question. The Ladies' business, which we refer to as all discretionary, has been a drag on recent same-store sales, and we hope to get it back to even just flat to alleviate that drag. This business faces unique challenges as we are comparing against significant numbers, particularly a 100% comp in the Ladies' segment from a couple of years ago. If it can return to low-single-digit declines or flat, that would certainly benefit the overall math. In our third quarter, the declines were broad-based; while ladies were hit the hardest, most other categories also saw declines on a comp basis. Looking ahead, I do feel optimistic that our core customer is relatively healthy and mostly employed, although they continue to feel the effects of inflation and have concerns about the economy and geopolitical factors. This may lead to a tendency to delay spending, but I don't see any fundamental issues with our customer's health. As we move into fiscal '25, I believe there is a chance we could return to positive comp growth in the next few quarters.

Okay. Thanks for the detail.

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

Great. Thanks a lot. Jim, just curious if you could actually elaborate on that last comment, just any color on when you think comps could flip positive as the underlying trends do appear to be improving, and then compares will ease pretty meaningfully, sequentially over the next couple of months.

I wish I could give you a specific date within the quarter; it's challenging to forecast comparables going forward, and I understand that's crucial for everyone on this call. However, what we can predict with a considerable level of confidence is that we plan to open 50 or 60 stores next year, likely generating over $3 million each. We believe there is still potential for us to improve merchandise margin. We continue to be the largest company in the industry. While I cannot specify when we might see a return to positive same-store sales growth, nearly all other aspects of the business are performing exceptionally well. We'll adjust our inventory levels based on the current same-store sales trends. Even in a negative same-store sales environment, we're managing to grow merchandise margin and have not accumulated significant clearance markdowns. We're navigating the current sales trend quite effectively. For our employees, we acknowledge that we experienced an unprecedented surge in sales a few years ago, and giving back just a small portion of it hasn't significantly impacted the company. I understand that investors are often focused on the most recent quarter's same-store sales, which may not provide much reassurance, but overall, the company remains in strong health.

Got it. That's helpful. And then just on the new store economics, is it fair to assume that you now view $3 million as potentially trough level? And then just any color on dispersion between maybe some of the faster and slower ramping stores? And then just within that if we are closer to the bottom, how are you thinking that the new store waterfall could look like ahead?

There are several aspects to consider in that question. The new stores and their volumes have been a tremendous success overall. Traditionally, we expected new stores to start at $1.7 million with a payback in three years, which was considered strong and a positive sign for our growth, as well as for Wall Street. However, we've seen that number rise to $3.5 million and now it's at $3.3 million. I don't see that as a low point; it might rise or fall from here. What I do know is that we're achieving a 60% cash-on-cash return, which is double what we initially promised upon going public, and we plan to continue opening stores rapidly. Regarding the new stores, ideally, they would start at $1.7 million and gradually grow to an average volume of $3 million. However, they are currently opening at much higher volumes. While we would prefer the growth to begin immediately, we are somewhat facing the consequences of our own success, as these stores are launching with very strong initial volumes and their first-year performance is aligned with our company's overall trend. One reason for the performance variance, if we're looking at it category by category, is that our new stores often perform exceptionally well in the ladies’ segment upon opening. Given that this segment is currently facing some challenges due to fashion trends, we believe that's impacting our growth. It's worth noting that while Wall Street is very focused on same-store sales, we're not particularly concerned. We're generating more volume and achieving higher returns on capital than we initially anticipated. If we have to adjust the first-year sales to realign with the waterfall, we could consider that, but we don't have any plans to implement such changes.

I appreciate that color. Thanks a lot, guys.

Of course. Thanks, Max.

Thank you. Our next question comes from the line of Jason Haas with Bank of America. Please proceed with your question.

Hi, good afternoon, and thanks for taking my questions. I was curious if you could provide some color on how you thought through the comp guidance for fiscal 4Q since it does seem to imply a deceleration through the quarter on a two-year stack basis, and I'm especially curious about it because you talked about January being impacted by weather.

Sure. Yes, Jason, so in guiding the fourth quarter, we follow the same approach we've been using all year, which is to apply the historical seasonality of the business for the most recent sales. And while it hasn't been perfect, this has been a much better predictor of the business than looking at a two or a three-year stack. And in this case, we use the recent non-holiday sales, so really October, November, and January, and applied the historical seasonality of the business. And when we talk about using historical seasonality, in this case, we've tried to exclude the COVID noise and looked at last year, the year before, and then two of the pre-COVID years, and kind of blended out how the flow of those sales rolled out from the month of January, and that's what we used to project out the rest of the quarter. Interestingly enough, when you use just the January's business and exclude October, November and roll that forward to February and March, you get to almost an identical answer in the guide. So, we've continued to look at it based off kind of the recent business and historical seasonality and it kicks out a number and oftentimes it's not what you would expect when looking at a multi-year trend, but it's been a little bit more reliable.

Got it. That's helpful. And then as a follow-up, I was curious if you could give us your sourcing exposure to China since there is some talk about potential for more tariffs coming in, so I'm curious how that would impact you and the industry overall.

Yes, generally speaking, rough numbers, about half of what we sell comes from China, about 25% from Mexico, and the balance coming from the U.S. and other countries.

Got it. That's helpful. Thank you.

I would add to Jim's comment, we've lived through a tariff environment before and it didn't really impact us, and we certainly would prefer that doesn't come back to us. That said, it certainly doesn't make us uniquely less competitive in the industry. We could actually construct an argument that it makes us more competitive because we're the biggest player. We have exclusive brands that are margin drivers, et cetera. So it's something we're watching and being cognizant of, but I don't think it's really keeping us awake at night either.

Got it. Thank you. That makes sense.

Thanks, Jason.

Thank you. Our next question comes from the line of Dylan Carden with William Blair. Please proceed with your question.

Thanks a lot. Just anticipation that those comments on private label penetration flat to down in the fourth quarter might raise some eyebrows, any more color you can add there? It sounds like you're anticipating back to growth next year, but anything there would be helpful.

I wouldn't worry about the exclusive brand; it's not about weaker brands or bad products, it's essentially a mathematical result. Our businesses have different levels of penetration, and our women's businesses have the highest penetration with exclusive brands, which represent a smaller portion of our sales this quarter as they are comping down more. This is affecting the penetration of exclusive brands. We’re dealing with a 300 basis point headwind in penetration simply due to the composition of the business. If the composition of sales hadn't changed this quarter, we would be projecting growth for exclusive brands. We obviously prefer growth, as it contributes to our merchandise margin, but this is genuinely a mathematical result, and we have other avenues to improve our merchandise margin besides exclusive brands.

And Dylan, as we look into fiscal '25, we are planning on returning to growth in exclusive brand penetration, right? So this is a one-quarter drag on the business.

Great. And it kind of bleeds into another question around one way to think about the unit volume question perhaps is what business you're losing. And as you kind of look through some of the categories where you've been weaker, obviously women's, do you feel like you're reaching a point where the discretionary nature of some of what's remaining or just the behavior of newer customers or anything to kind of give you some comfort in and around how much more, in theory you could lose? Does that make sense?

We have a solid foundational business overall. The majority of our men's and ladies' work apparel is functional, as is a portion of the men's western segment. While there is some cyclical decline in the fashion category, particularly for ladies, we are still generating significant sales in that area. However, the performance is largely balanced by the functional segment of the business. I believe we are not completely past the challenges in the ladies' segment yet. I anticipate that in the next few quarters, we may see an improvement in this trend, and possibly even a return to growth, but I do not expect that to occur in the next one or two quarters.

Understood. Thanks a lot, guys.

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

Hi, everyone. Yes, wanted to ask about the E-commerce business. It seems like it's still kind of hovering down in that negative low-double-digit range. Want to know how you think about the pieces of the business that are not bootbarn.com business? Remind us of the strategic importance of having Sheplers, Country Outfitters, the Amazon business. And then would love to hear how you're thinking about driving that business into next year? We're hearing of ad rates continuing to push higher, so how do you think about how that business evolves, just in light of maybe higher cost on ad spend into next year? Thank you.

Sure, very good question. So the four pieces, bootbarn.com, of course, is an extension of the store, and we do really pride ourselves on that omnichannel experience and I think those two channels have been stitched together quite well and they also share the same retail prices. Sheplers.com, true to its heritage, is a very price-conscious customer, and oftentimes, frankly has a lower price than bootbarn.com, and we like that brand because it enables us to compete against other online players that are playing a price game, so that's kind of the Sheplers strategic importance. Country Outfitters was an acquisition several years ago. It tends to be focused on ladies' fashion, which is one of the reasons why it's having so much difficulty right now. We do think there is some long-term possibility for that business to get back to growth. It also gives us a testing ground for trying new things without impacting the two bigger business. The Amazon business is, I think a necessary evil. We sell some products on there; so do a lot of other people. It tends to be a low-margin business for us, but still profitable. So we participate in sort of the behemoth of Amazon, and that business gives us a read on sort of the general public demand that might be more casual purchasers of our product. In terms of the future of the Online business and the growth, the Online spend and the inefficiency of that is real. We could quite easily get more sales and spend more money and those sales would be EBIT eroding, so we just don't do it. So we manage it somewhat algorithmically. I do think that will normalize at some point. There'll be sort of a new equilibrium. That is another business that when we look at a historical perspective, it's grown extremely strongly over a few years, and while we'd like to get back to positive sales, the fact that it's giving a portion of the business back, after such outsized growth, it might be kind of expected, but we do think it can get back to positive sometime in fiscal '25.

Perfect, thank you. And then, just wanted to follow up on the tariff question. Do you have an estimate of what you directly import from China? I understand that I think you said half of your products are from China, but only a portion of that is…

Yes, it's similar with exclusive brands and third-party, it's still about 50%.

Perfect. Thank you very much.

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

Yes, hi, thank you. Maybe just a follow-up once more, when you run through the exercise and look at the sales volumes that you called out for projecting the fourth quarter sales and comps, could you just share a little more insight, when you do that same exercise, what does that inform you to when the comps of the business could turn back positive and how should we think about any swing factors, one way or another?

Sure. It's encouraging as we look to this current quarter. While there is a deceleration in the two-year stack and possibly a couple of other stacks if we look back far enough, we're guiding that business in the stores for February and March to be down four or five. This represents an improvement from what we've seen more recently, which is positive. Additionally, over the past few years, February, March, and April have experienced a lot of macro noise due to factors like COVID, Omicron, tax stimulus, and tax refund payments. This has made it more challenging to predict where that business is heading. However, last year in February and March, we noticed an unusual slowdown in business trends that was not typical for that time of year. As we plan for this year, if we see any return to what has been normal during those months, there's potential for some upside, which would be encouraging as we consider fiscal '25. I realize this doesn’t directly answer your question, Jon, but as we look ahead to fiscal '25, we really need to get through the next three months to provide a clearer picture of when things might turn positive.

Yes, that's helpful information. I have a couple of quick follow-up questions. Regarding the fourth quarter, Jim, could you confirm if the implied product margin appears to be lower now than it was previously, even after considering the exclusive brand update you provided? I would like to know if there are any changes on the product margin front. Additionally, about the SG&A comments for fiscal '25, are you suggesting that you still require more than a 4% comp to achieve leverage, similar to the setup in 2024? I'm trying to understand the rationale behind your commentary today on the SG&A.

Sure, Jon. For the product margin in Q4, we anticipate an increase of 20 basis points year-over-year, while freight is expected to impact us by 140 basis points. Even though exclusive brand penetration may remain flat or slightly negative, we expect growth due to improved economies of scale. Looking ahead to fiscal '25 regarding SG&A, I’ll address both buying and occupancy as well as SG&A. Previously, we indicated that a 4% comparable sales growth is needed to leverage buying and occupancy. We'll keep you updated if there are any changes as we approach next year. If there aren’t any changes, the benefits we mentioned relating to the supply chain might reduce the leverage point, but it’s still too early to determine if 4% is the precise requirement for next year. Regarding SG&A, the historical leverage point for same-store sales has been around 2.5%. The new corporate building may place some pressure on that. It’s also too early to predict accurately, but we might see an impact of about $5 million or $6 million on SG&A next year. Nonetheless, we are working on strategies to mitigate some of that impact, and we’ll provide an update on the leverage point as we approach next year, during our May call.

Understood. Thanks again.

Thanks, Jon.

Thanks, Jon.

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

Thanks for taking the questions. And just wanted to start with the new store openings. I think I caught in the script that you were expecting for F Q4 that all of the openings for the March quarter were going to be in the back half of the quarter. And then just if you could provide a little bit of color on that. And then related, as we look ahead to your commentary on FY '25 unit growth, is there anything notable that you would point out on the expected cadence of those openings?

I understand that you mentioned the comments in the script, and we are seeing a concentration of activities in this quarter. Concerning our fiscal '25, while I risk providing guidance I'm not ready to discuss today, we'll address that in the next call. There's nothing particularly noteworthy to mention, as all the openings will not be confined to the first quarter. We aim to distribute them evenly throughout the year, so there is nothing specific to highlight.

And I would just add, Jeremy, the pipeline is healthy. We've got a lot of leases that we've signed and so we're headed into next year with a very healthy pipeline.

Got it. And then if I could just dig in a little bit here on the new headquarter, which I guess the move is expected in Q3 or Q4 of fiscal '25, what is the annual lease cost higher than what you currently are paying? And then what is the expected depreciation on an annualized basis?

Yes, it's still a bit early to provide the detailed costs because we haven’t completed the property development yet. The figure I mentioned, $5 million to $6 million, represents the projected expense for next year, which includes the increased lease costs. It's worth noting that when we moved into our current building years ago, we were a much smaller organization and now we've outgrown that space, necessitating a larger building. The lease costs are higher since it's a new lease. That $6 million estimate includes some double rent for a period and depreciation that will commence later in the year. I expect that in the following year, the $5 million to $6 million range will likely decrease on a run rate basis because we’ll incur some one-time costs this year. I wanted to highlight this as we will see benefits and some supply chain cost reductions amounting to $6 million, along with a slight impact from the corporate office building on the SG&A line. Overall, it balances out, but you might need to adjust your models accordingly.

Got it. That's helpful. Best of luck.

Thank you.

Thank you.

Thank you. Our next question comes from the line of Jeff Lick with B. Riley Securities. Please proceed with your question.

Thank you for letting me ask a question. Jim Conroy, it looks like you've lowered your Q4 guidance by about $23 million. I'm interested in understanding what has changed since you provided the earlier implied guidance. Additionally, could you share any updates on new store openings and performance in non-traditional markets? I remember you had some good stories from Scottsdale. Are there any similar examples from places like Connecticut or New Hampshire that show how well the concept is being received?

I will address the question about new stores, while Jim Watkins will handle the guidance for Q4. New stores are performing well in both new and legacy markets. For instance, in Phoenix/Scottsdale, we previously operated four stores and now we have eight, with further development opportunities still available. The volume at those original four stores has increased, and we have seen growth while adding stores in that area. This experience has taught us that we can continue to build in our legacy markets, generating new business without negatively impacting our comparable sales. Additionally, we have successfully opened locations in the Northeast, achieving great results in markets that are typically not considered part of the Western region.

Yes, regarding the first part of your question about the change in Q4 sales, the $23 million stems from our guidance on November 2. We based our projections on the business from late September to October, but unfortunately, the sales trend weakened more than we expected, especially in December. January also turned out to be softer than anticipated, so we've adjusted our outlook based on the recent business performance.

I'm assuming what I'm looking for is that's primarily the Ladies' business or what you'd call a discretionary fashion business.

Yes, I mean it's kind of a broad-based, just lower than what we had thought; it's not that that one business got significantly worse and everything else kind of stayed the same, but it's more broad-based than that.

Thank you. As we're coming up on the one-hour limit, our final question will come from the line of Mitch Kummetz with Seaport Global Securities. Please proceed with your question.

Yes, thanks for taking my questions. A few things, one, I was hoping to get a little bit more clarity on the January comp. I do appreciate the regional breakout given the weather, but Jim Conroy, I think you said that, like weeks one and four were pretty normal weather-wise across the country. When you sort of isolate those weeks, was your store comp kind of in that low-to-mid-single-digit range or is there anything more you can say about those sort of non-weather impacted weeks?

Yes. So, January in total was minus eight-ish and the non-weather impacted businesses were low-single-digit negative, and then of course, the others were double-digit negative with some markets just getting really, really hurt with the weather, so that's the color I would provide.

Okay. Could you say what your Ladies' comp was for January or for the first four weeks of the quarter?

In line with Q3, the performance was perhaps slightly worse, particularly from the least functional of our businesses, as we saw some individuals making special trips despite the challenging weather conditions, indicating a slight decline compared to our Q3 results.

And then I guess lastly, just given your comments around exclusive brands penetration in the fourth quarter and how that business skews to the ladies, the fact that you expect the penetration to be down, does that suggest that there's going to be a bigger delta in your performance between kind of ladies, and non-ladies in the fourth quarter than what you've seen sort of year-to-date, is that the right kind of takeaway from those comments?

I feel like I'm solving a math problem with my son. It's a fair hypothesis, I believe the reason we mentioned it this time is because it shifted the penetration from positive to negative. If you look back to the most recent quarter, we experienced the same situation, but since Exclusive Brands still grew by three points, we could have suggested it would have grown by a larger margin, but we chose not to highlight that because we didn't think it would attract much attention. We anticipated that when we mentioned Exclusive Brands could decline in penetration for this quarter, we had calculated the figures. So I wouldn’t interpret this as anything more than the fact that it caused a decline instead of an improvement in penetration, which we thought was important to mention. Thank you, everyone, for joining the call today. We look forward to speaking with you on our fourth quarter earnings call. Take care.

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.