Boot Barn Holdings, Inc. Q2 FY2026 Earnings Call

Good day, everyone, and welcome to the Boot Barn Holdings, Inc., Second Quarter 2026 Earnings. As a reminder, this call is being recorded. Now I'd like to turn the conference over to your host, Mr. Mark Dedovesh, Senior Vice President of Investor Relations and Finance. Please go ahead, sir.

Thank you. Good afternoon, everyone. Thank you for joining us today to discuss Boot Barn's Second Quarter Fiscal 2026 Earnings Results. With me on today's call are John Hazen, 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 during this call are forward-looking statements. These forward-looking statements reflect Boot Barn's judgment and analysis only as of today, and actual results may differ materially from current expectations based on a number of factors affecting Boot Barn's business. Accordingly, you should not place undue reliance on these forward-looking statements. For a more thorough discussion of the risks and uncertainties associated with the forward-looking statements to be made during this conference call and webcast, we refer you to the disclaimer regarding forward-looking statements that is included in our second quarter fiscal 2026 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 John Hazen, Boot Barn's Chief Executive Officer. John?

Thank you, Mark, and good afternoon. Thank you, everyone, for joining us. On this call, I will review our second quarter fiscal '26 results, discuss the progress we have made across each of our 4 strategic initiatives, and provide an update on current business. In addition, I will be sharing the outcome of a recent study we completed, resulting in an increase to our estimated total addressable market and our long-term store count potential. Following my remarks, Jim Watkins will review our financial performance in more detail, and then we will open up the call for questions. We are very pleased with our second quarter results, which reflect broad-based strength across all major merchandise categories in stores and online and across all geographies. During the quarter, revenue increased 19% compared to the prior year to $505 million, driven by sales from the 64 new stores opened over the last 12 months and consolidated same-store sales growth of 8.4%. In addition to strong sales growth, merchandise margin rate increased 80 basis points compared to the prior year period. The strength in sales and margin, combined with solid expense control, resulted in earnings per diluted share of $1.37 during the quarter, which equates to 44% growth compared to the prior year period of $0.95. The team's ability to deliver strong top and bottom line results reflects the execution of our 4 strategic initiatives, which I'll now spend some time discussing. Let's begin with new store growth. Our new store growth engine continues to exceed expectations while expanding the Boot Barn brand across the country. Halfway through fiscal '26, we have already opened 30 new stores, and we expect to open 40 new stores over the balance of the fiscal year, ending the year with 70 new stores opened. We estimate new stores on average will generate approximately $3.2 million in annual sales and pay back their initial investment in less than 2 years. Consistent with our comments last quarter, the new stores opened over the last 6 years are providing an approximately 100 basis point tailwind to consolidated annual comps. Now turning to our total addressable market and long-term store count potential. The strong broad-based results we have seen across new store openings, merchandise categories, and geographies prompted us to revisit the total market opportunity for Boot Barn. Similar to the study we conducted 3 years ago, we have combined our internal analysis with a third-party study to understand the future potential of the Boot Barn brand. This work suggests that the market is substantially larger than our prior estimate, and we now believe that our total addressable market has expanded from $40 billion to $58 billion. Turning to our long-term store count potential. New stores opened over the last few years have consistently generated strong sales and earnings across all geographies, which has emboldened our approach to be a stores-first organization. We recently reevaluated our store potential across individual U.S. markets and have combined that analysis to support our estimates. We now believe that the U.S. store count can reach 1,200 stores, and we expect to open 12% to 15% new units annually. As we look towards fiscal '27, the pipeline remains very strong, including 20 projected openings in the first quarter, which will begin in April. I would like to thank the entire team for their tireless efforts in identifying quality real estate, building and merchandising impressive stores, hiring and training both average unit retail and units per transaction of less than 1%. From a merchandising perspective, we saw broad-based growth across all major merchandise categories in the second quarter, led by the ladies' business, which comped positive mid-teens. This was followed by the men's business, which comped positive high single digits. Our denim business, which is included in the categories just mentioned, comped positive high teens. Our work boots business comped low single-digit positive and our work apparel business comped mid single-digit positive. We were extremely pleased to see the broad-based growth across categories continue from the first quarter into the second quarter. From a marketing perspective, Boot Barn proudly sponsors hundreds of rodeo and events every single year. We support a broad array of events across the country from local rodeos to national sponsorships such as Professional Bull Riders and National Finals Rodeo. We also have long-standing partnerships with country music artists, Miranda Lambert and Brad Paisley, and we recently announced a new sponsorship agreement as the official boot retailer for the Stagecoach Music Festival. As the largest Western retailer in the nation, we are thrilled to form a partnership between our brand and the largest country music festival. Moving to our third initiative, omnichannel. In the second quarter, e-commerce comp sales grew 14.4% and bootbarn.com, which is approximately 75% of our online sales, comp positive high teens. We are very pleased with the growth in our online channel and attribute a portion of our strong results online to several recent initiatives. I would like to first touch on the rollout of our new exclusive brand websites, which is one of the early visions I had for the company upon assuming my new role as CEO. The primary goal of these sites was intended to provide a vehicle for brand storytelling and to market our exclusive brands as stand-alone brands, similar to that of our third-party brands. As part of this initiative, earlier this fiscal year, we launched a new website and marketing campaign for our work brand, Hawx, and we duplicated that approach late in our second quarter for our largest exclusive brand, Cody James. We are pleased with the initial returns on both rollouts, particularly the large number of net new customers to Boot Barn that are visiting each site. In addition to building the brand awareness and authenticity we had hoped for, we are also very pleased with the early sales on these sites. Another initiative we believe is driving strong results online is the implementation and integration of artificial intelligence. Our omnichannel team has improved the search functionality on our website, utilizing AI, which now offers the customer a wider range of search results and more product recommendations when they browse the site. In addition to the new search experience, Boot Barn is leveraging AI to enhance product copy, support store associates through our Cassidy assistant and develop multimedia training modules. While still in the early stages, we continue to look for opportunities to integrate AI to improve the customer experience and drive efficiencies. Lastly, our strategy to open new stores not only expands our national footprint, but also benefits online sales. When a Boot Barn store opens in a market, we see a noticeable increase in online sales volume in that store's vicinity. A brick-and-mortar location legitimizes the Boot Barn brand for a new customer and many omnichannel offerings provide a seamless shopping experience for our online customers to also find our store, benefiting both sales in-store and online. I am very pleased with the achievements of our omnichannel team and their collaboration with the stores organization to expand the overall business and provide a great customer experience. Now to our fourth strategic initiative, merchandise margin expansion and exclusive brands. During the second quarter, merchandise margin increased 80 basis points compared to the prior year period and exclusive brand penetration increased 290 basis points to 41% of sales. I'm thrilled with our team's continued ability to develop high-quality product to complement the great assortment offered by our branded vendor partners. I'd like to now provide an update on our pricing strategy. As a reminder, third-party price increases of approximately mid-single digits went into effect during the second quarter. As we discussed on our last call, we made a decision to limit exclusive brand price increases in order to evaluate the customers' reaction. Over the last several months, we have worked closely with our exclusive brand factories in order to mitigate the impact of tariffs to the business. In some instances, we have been able to keep our total product costs relatively unchanged, allowing us to maintain merchandise margin rate without increasing prices. In other instances, we are experiencing increases in product costs as a result of tariffs. The combination of partial cost mitigation and our inventory turns have afforded us the opportunity to wait until after the holidays to implement price increases on exclusive brands without adversely affecting our margin rate in the third quarter. The magnitude of price increases will vary product to product based on current costs as well as where tariff rates settle. Now turning to current business. We are 4 weeks into the third quarter of fiscal '26, and we have continued to see broad-based growth with a consolidated same-store sales increase of 9.3%, driven by an increase in transactions. While we are pleased with the start to our third quarter, as a reminder, October has historically represented 25% of the quarter's revenue with December alone representing half of the third quarter's revenue. We remain cautious of overall consumer sentiment and macro uncertainty that will continue to manage our business prudently. That said, we feel very good about the current tone of the business, and we believe we are well prepared for a strong holiday season with exciting marketing campaigns, fresh inventory, and a well-prepared field organization ready to provide best-in-class customer service. I would like to now turn the call over to Jim.

Thank you, John. In the second quarter, net sales increased 19% to $505 million. The increase in net sales was the result of the incremental sales from new stores and the increase in consolidated same-store sales. The 8.4% increase in same-store sales is comprised of a 7.8% increase in retail store same-store sales and a 14.4% increase in e-commerce same-store sales. Gross profit increased 20% to $184 million compared to gross profit of $153 million in the prior year period. Gross profit rate increased 50 basis points to 36.4% when compared to the prior year period as a result of an 80 basis point increase in merchandise margin rate, partially offset by 30 basis points of deleverage in buying, occupancy, and distribution center costs. The increase in merchandise margin rate was primarily the result of better buying economies of scale and growth in exclusive brand penetration, partially offset by higher freight expense. The deleverage in buying occupancy and distribution center costs was driven by the occupancy cost of new stores. SG&A expenses for the quarter were $128 million or 25.3% of sales compared to $113 million or 26.5% of sales in the prior year period. SG&A expense as a percentage of net sales decreased by 120 basis points, primarily as a result of lower corporate general and administrative expenses and legal expenses in the current year period. Income from operations was $56 million or 11.2% of sales in the quarter compared to $40 million or 9.4% of sales in the prior year period. Net income per diluted share increased 44% to $1.37 compared to $0.95 per diluted share in the prior year period. Turning to the balance sheet. On a consolidated basis, inventory increased 20% over the prior year period to $855 million and increased approximately 1% on a same-store basis. Total inventory increased as a result of adding 15% new stores and growth in exclusive brands. We feel good about the health of our inventory and our markdowns as a percentage of inventory are both below last year and historical levels. During the quarter, we purchased approximately 73,000 shares of our common stock for an aggregate purchase price of $12.5 million as part of our authorized $200 million share repurchase program. We finished the quarter with $65 million in cash and $0 drawn on our $250 million revolving line of credit. Now turning to our raised outlook for fiscal '26. Driven by year-to-date results and the strong start to our third quarter, we are increasing full year guidance. The supplemental financial presentation that we released today outlines the low and high end of our guidance range for both the fiscal full year and third quarter. I will only be speaking to the high end of the range for both periods in my following remarks. For the full fiscal year, we expect total sales to be $2.235 billion, representing growth of 17% over fiscal '25. We expect same-store sales to increase 6% with a retail store same-store sales increase of 5.3% and e-commerce same-store sales growth of 13%. We expect merchandise margin to be approximately 50.6% of sales, a 50 basis point increase over the prior year period, and includes exclusive brand penetration growth of 240 basis points. We expect gross profit to be approximately 37.7% of sales. We anticipate 30 basis points of deleverage in buying, occupancy, and distribution center costs due to the occupancy of new stores and 50 basis points of leverage in SG&A. Our income from operations is expected to be $294 million or 13.2% of sales. We expect net income for fiscal '26 to be $219.6 million and earnings per diluted share to be $7.15. We plan to grow new units by 15%, adding 70 new stores during fiscal '26. We expect our capital expenditures to be between $125 million and $130 million, which is net of estimated tenant allowances of $39 million. And for the balance of the year, we expect our effective tax rate to be 26%. For the third quarter, we expect total sales at the high end of our guidance range to be $700 million and a consolidated same-store sales increase of 4.5%. We expect merchandise margin to be approximately 49.7% of sales, a 30 basis point increase from the prior year period, which includes a 200 basis point increase in exclusive brand penetration. We expect gross profit to be approximately 38.8% of sales, which includes 70 basis points of deleverage in buying, occupancy, and distribution center costs. Our income from operations is expected to be $107 million or 15.3% of sales, a 100 basis point deleverage compared to the prior year period. We expect earnings per diluted share to be $2.59. As a reminder, income from operations in the third quarter last year benefited by approximately $6.7 million, primarily related to the former Chief Executive Officer's forfeiture of unvested long-term equity incentive compensation and the reversal of cash incentive bonus expense as a result of his resignation. We estimate in the third quarter last year that this was a 110 basis point benefit to SG&A and income from operations and a $0.22 benefit to earnings per share.

Thank you, Jim. We are very pleased with our second quarter and year-to-date results and the positive momentum of the business as we head into the holiday season. I would like to thank the entire team for their hard work and dedication. The company's culture and teamwork are truly remarkable, and over the past decade have built Boot Barn into the national retailer it is today. I'm excited about the future growth potential of the Boot Barn brand as we target 1,200 stores across the U.S., and I believe we have the foundation and team in place to achieve this goal. Now I would like to open the call for questions.

The first question comes from Matthew Boss with JPMorgan.

And congrats on a great quarter.

Thanks, Matt.

So John, could you elaborate on the drivers of October's further comp acceleration? And then on the more than 30% increase to your long-term store target today, does this embed any moderation in unit economics? And maybe if you could speak to regions of largest white space opportunity?

Yes, absolutely. Starting with the October business, it closely mirrored the major merchandise categories we observed in Q2. The only exception was a significant increase in work boots, which improved from a low single-digit comparison to a mid-single-digit comparison. Aside from that, when we consider men's and women's boots as well as apparel, their performance was consistent with the results from Q2. With our store count at 1,200 across the country, the average store currently generates $3.2 million in sales. We believe that the new stores will perform similarly to this average. We have some stores that perform below this amount, and others that exceed it. Thus, the 1,200 store target aligns with the performance metrics we use for the stores we are building.

Yes. And just to clarify on that, the $3.2 million being the new store economics, our average stores, as you guys know, are higher than that.

And then maybe, Jim, as a follow-up, could you just walk through the bridge between roughly 2% comps forecasted for the second half of the year relative to the October performance, 9% plus. Just maybe how much of this is prudent macro haircut versus anything specific to the business?

Absolutely. So similar to our usual approach, we analyzed the most recent sales data covering the last three months, from August to October. Given the macroeconomic uncertainties, including the likelihood of a decline in consumer sentiment during the latter half of the year, we applied approximately a 3% reduction to our model. This led us to estimate a 2% growth in same-store sales for our locations. For the months from November to March, we anticipate a consistent 2% increase in each month with a similar adjustment as we had earlier in the year.

Great, best of luck.

Thank you, Matt.

Thanks, Matt.

The next question comes from Peter Keith with Piper Sandler.

Great results, guys. The TAM increase is pretty impressive from $40 billion to $58 billion, so a 45% increase. I was hoping if you could just unpack that a little bit. And is it specific categories, age demographics, the proliferation of Western wear? Like what's driving this large increase just after taking up about 3 years ago?

Sure. So Peter, we partnered with a third party that looked at the demographics, of course, across the country, anyone older than 18. We surveyed roughly 8,000 consumers, looked at the familiarity they had with different brands, eliminated categories that should not be part of the TAM for obvious reasons, looked at the trend of casualization of wearing occasions in the United States, asked some questions about how likely they were to wear certain products. Were they aware of certain types of stores and kind of combined all that information to come up with the new TAM that admittedly included a portion of mainstream denim, by no means all of mainstream denim, but we acknowledge that we've become a little more of a denim destination over the last few years, and that was incorporated into the TAM as well.

Okay. Very interesting. And then you were referencing on the tariffs with price increases, and I just want to make sure we're understanding it. So the branded prices have gone up. You have not taken exclusive brand pricing yet, but you now plan to take exclusive brand pricing up after the holiday. So does that imply you're not really seeing the mix shift that you were hoping to into exclusive brands?

Yes, that's correct. We've noticed a slight increase in exclusive brands, reaching 41% penetration. We were hoping this figure could go even higher. However, consumer behavior remains unchanged, as they continue to purchase third-party brands, which is positive. After completing a six-week test period, we recognized certain factors influencing the cost structure of our holiday merchandise. Some items were sourced before tariffs took effect, exclusive brands sell a bit slower due to our purchasing volume, and we received one-time concessions from overseas factories that provided us with better margins to maintain prices during the holiday season. As we move beyond the holidays and face ongoing tariff challenges, which have worsened in some countries like India, we will focus on maintaining margins for exclusive brands. This may involve negotiating tariff impacts with our factories or, where necessary, increasing prices on exclusive brands, approaching this on a style-by-style basis as we progress into the fourth quarter and into next year.

The next question comes from Jay Sole with UBS.

John, I want to ask you about your comments about the success of the websites for Hawx and Cody James. Given the momentum that you've seen in the success of those plans, what's your vision now for where you can take the exclusive brands? Like what can they become beyond just brands in the Boot Barn store? Can they become bigger? And how would you do that now that you've seen that new websites have been successful?

We will keep focusing on developing Cody James and Hawx as strong brands, which means they will sell directly to consumers through their websites. However, the main objective of these sites is to drive customers into Boot Barn stores. At this time, there are no plans for wholesale or international sales. Looking at our investments, we've seen a significant number of impressions and clicks on the sites. While our primary goal was not to drive immediate sales, we experienced a positive impact on sales, particularly in Q2, where it contributed a few points to our e-commerce growth, despite our expectations being low. The focus has been more on storytelling. Over the next 12 to 18 months, our goal is to create excitement around Cody James, Hawx, Cheyenne, and Idyllwind, and to emphasize that the best place to purchase these brands is at Boot Barn stores.

So that's helpful. If I could just follow up with one. Do you plan on expanding the assortment, in other words, offering more categories on those websites and maybe you have room for in the Boot Barn stores just as a way to dimensionalize those brands?

Yes. Those sites will have a comprehensive selection of each of those brands, and I can't think of a store that offers the variety we provide for Cody James or Hawx. We won't be creating any more products for those sites. However, if you want to see the complete range of Cody James Western, Cody James Work, and our higher-end line of denim and boots called Cody James 1978, that's where to go. With an average store size of 12,000 square feet, we could never tell the story or showcase the range as effectively as we can on those sites. It's much more impactful to convey those stories on dedicated websites. On bootbarn.com, it gets complicated since the products are mixed with other exotic boots or denim. Therefore, having a dedicated site allows us to tell the story and display the full assortment, which we believe will be extremely advantageous.

The next question comes from Steven Zaccone with Citi.

Congrats on a nice quarter. To follow up on pricing, can you help us think through the second half? What should AUR be up in the second half relative to some of the commentary you gave? And then I guess a bigger picture question, why do you think pricing elasticity has performed better than planned? You seem to be bucking the consumer backdrop and transactions are still strong. How much of this is fashion being a tailwind and you kind of positioning yourself as more of a denim destination?

Yes. Starting with the average unit retail portion, we anticipate that average unit retail in the second half of the year will increase by 2% to 3% despite a decline in transactions. We believe this decline is primarily influenced by macroeconomic factors rather than the increase in average unit retail. We have raised the prices on third-party brands by mid-single digits. Throughout our testing, we did not notice any significant change in consumer behavior; customers continue to purchase both exclusive and third-party brands, which is encouraging. As we examine our customer base, we've noticed little difference compared to last year regarding the distribution of income brackets. The penetration of lower and higher income customers remains consistent. Our customer base appears to be driven more by need than by fashion trends. One distinguishing factor in our business is this needs-based approach.

Okay. That's helpful. The follow-up question I had was on buying and occupancy. So can you help us think through the buying and occupancy leverage point for the second half of the year? And then with the 12% to 15% growth rate on an annual basis for stores, do you see the buying and occupancy point coming down at some point? Or what should we think is the right leverage point at that elevated store growth target?

Yes, that's a great question. The buying and occupancy leverage point we identified at the start of the year, which was a plus 7% comp needed to leverage, has likely increased slightly due to the timing of new store openings and our ability to open some stores earlier this year. Looking ahead to the first quarter of next year, we have a strong pipeline with 20 stores, and those openings have actually moved up within the first quarter. Therefore, we'll incur some pre-opening rent expense in our fourth quarter that we hadn't previously anticipated. This makes the leverage point around 7.5% this year, which is higher than we would like, but the reason is that we have some excellent stores ready to open. Regarding the 12% to 15% growth we've discussed over the last few years, as we accelerated from a 10% to a 15% new unit opening pace, this did create a higher leverage point. We're currently at a 15% run rate, completing our fourth year of achieving that growth. In the next year or two, I could see that possibly decreasing to a plus 6% comp. After that, we'll have to see where we end up. However, given the strong openings of 12% to 15% in the future, I don't anticipate that number declining significantly due to the volume of new stores we will continue to open. We'll keep you informed each year about our outlook for the upcoming year.

The next question comes from Max Rakhlenko with TD Cowen.

Congrats on all the momentum. So first, in your TAM and store analysis, can you speak to where you see the bigger opportunities for growth ahead regionally? And then as you think about store growth, could we see stores potentially get a little bit bigger? I think that that's what you did a few years ago. So just curious how you think about the right store size to generate the strongest productivity?

Yes. As we look at the 1,200 store opportunity, we're going to continue to open stores across the country broadly. We've learned much in the last few years about where we've opened stores and what has worked best. But for competitive reasons, we're not going to go into what we've learned on the call, but we feel very, very good about that road map to open those 1,200 stores. And to the question on size, it's going to be real estate dependent. If you saw what happened with Party City, maybe there were some bigger boxes that became available. So it's going to be more about location than anything. So we're going to continue to be flexible in the size of the box, more so about where it is and its location than the actual size itself.

Got it. Okay. That's helpful. And then, Jim, you previously discussed an opportunity to reach a mid-teens EBIT margin over the longer term. With some of the changes that you've made to sourcing, exclusive brand mix as well as exclusive brand margins, the improvement that's still to come there over the next couple of years. Do you see an opportunity to reach that sooner than you previously expected internally? And then just what's the latest thinking about the margin level that the business can generate as you do get closer to this 1,200 store target?

Yes, great question, Max. You're correct that we have discussed the 15% target, which used to be 10%. We've now maintained that 15% target for a couple of years. A couple of years ago, we anticipated it would take about five years to reach this margin. If we achieve the high end of our range this year, we will have grown our operating margin by 120 basis points over a two-year period, meaning we are ahead of schedule on that goal. We will need to assess how we guide for next year, considering the impact of tariffs and the broader economic environment. Nonetheless, the prospect of opening new stores in prime locations is encouraging. The sourcing strategy that John has mentioned for the past few quarters is in its early stages, and I see significant potential for margin growth from that initiative. However, as I noted in response to the previous question regarding buying and occupancy, strong comparable store sales will be essential to cover that aspect. In summary, while there seems to be a chance of reaching the 15% margin possibly sooner than we initially expected, I don't want to commit to anything beyond that at this moment.

Got it. That's super helpful. And best of luck.

Thanks.

The next question comes from Janine Stichter with BTIG.

I wanted to ask a bit about the geographic performance. Curious if you're seeing anything different regionally. And then anything you've seen in terms of weakness with the Hispanic consumer. It doesn't seem like in the results, but something other companies have called out. So just wanted to see if you were seeing it as well?

We did mention earlier that we're seeing solid growth across all regions. Similar to what John mentioned, I prefer not to go into detail about which areas are performing better for competitive reasons. However, I can say that we observed widespread growth throughout the country. Regarding the Hispanic customer, we've analyzed the demographic data we have and haven't noticed any significant changes in their shopping behavior.

Great. And then just a quick one on tariffs. I think earlier in the year, you had said $8 million of tariff headwinds. And since then there's been some changes in rate, but it also sounds like you're maybe taking a little bit more price on the exclusive brands after the holiday. Just where does that number shake out now relative to the initial forecast?

Yes. The purpose of the $8 million figure was to provide a broad overview of tariff impacts. We've seen significant figures and aimed to put that into context. At that time, I mentioned there were many variables and a constantly changing situation. The tariffs we incur on inventory are not reflected in the profit and loss statement until the inventory is sold, which can be six or nine months later. Therefore, we won't have an update on that figure at this moment. Additionally, our team's mitigation strategies with factories have helped lower the cost of manufactured goods, as they are open to negotiating prices despite the higher tariffs. This creates a blend of tariff costs and reduced expenses, making it challenging to quantify the exact amount. However, we have incorporated tariff considerations into our margin guidance for the remainder of the year, and we feel confident about that.

The next question comes from Dylan Carden with William Blair.

Curious about your updated thoughts on the long-term opportunity for TAM stores, where do you estimate online penetration will end up? With the growth in AI initiatives, it seems like it could be significantly higher. Are there any implications for margins as a result? Historically, online sales have tended to be slightly below retail.

Yes, Dylan, the online business and the omnichannel team is doing a great job. As you saw in the release, we had a plus 24% in October. The business is doing very, very well. They're investing in technology. They're investing in AI. The very nice challenge they have is, we're going to open 70 stores with an AUV of $3.2 million, and that's the equivalent of a bootbarn.com every year. So we think it's going to continue to hover around 10%. I don't see any tectonic shift in that penetration anytime soon.

The next question comes from Jonathan Komp with Baird.

I would like to ask John if you could elaborate on the merchandising initiatives you are pursuing and their effectiveness, particularly with regard to third-party brands or categories. Specifically, concerning denim, I recall that denim saw significant growth in Q2 last year, and now you're experiencing double-digit performance. Any insights on how you can maintain that momentum would be appreciated.

Yes, the buying team and the visual merchants in the store have done an incredible job with merchandising. Our inventory levels of full-price seasonal merchandise are in a great place, and our clearance levels are very low. We have established ourselves as a denim destination. As we compare to last year's strong denim numbers, we saw better performance on the men's side, leaving us room to grow on the women's side. As we approach the holiday season, we'll be prominently featuring both third-party and exclusive brand denim in our stores with improved merchandising. Looking at the top styles in women's and men's denim, boot cut jeans remain the most popular. Customers continue to come to Boot Barn for their denim, which mostly features traditional silhouettes along with a good mix of third-party and our exclusive brands, though we tend to offer more exclusive brands in women's denim. Denim will be a key focus going into the holiday season, and while we weren't quite where we wanted to be last year on the women's side, we are optimistic about our performance, especially as we compare to the men's side. We feel great about denim as we head into Christmas and the holiday season.

Okay. Great. Jim, as you consider guidance for the second half comparisons, could you share your thoughts on the range of outcomes for that period? It seems like macroeconomic factors might impact this, but have you also thought about potential benefits from stimulus or any other context that could shape the projected outcomes given the recent momentum?

Yes. Yes. No problem, Jon. It is a wide range of outcomes, right? I mean we would love it if there wasn't an impact from the macro and the haircut that we put in there was not necessary. And I know many will ask us about how strong the October business is. And while it's 4 weeks of business and the slower month of the quarter, it's exciting to see how strong the comps are and how well the business is doing. We haven't contemplated or included in there a tailwind from stimulus or any of these bills that come through that might drive some construction or infrastructure build or any of that. It's just too hard to figure out what quarter that would come into. And so that is not included in there. But we feel good about the full year 4% to 6% same-store sales guide and kind of how we've built that. I don't know if I have anything else to add there.

The next question comes from Sam Poser with Williams Trading.

I have a couple of questions. First, how many stores do you plan to open each quarter for the rest of the year? Specifically, how many were opened in Q3 and how many are expected in Q4?

We've got 25 stores in Q3 and 15 in Q4.

I'm curious about how you applied the concept of narrowing and focusing on the assortment in denim from the last call to other categories, particularly in boots. Are you working on that, and to what extent?

Absolutely, Sam. It's a great call. We have a group of styles that we call tried and true. It's the top 3% to 4% of styles that make up a disproportionate portion of our sales, and there has been a focus from the merchant team to ensure that we're always in stock on those styles. And I'm proud to say that the team is at 90% in stock on those very small number of styles, roughly 1,000 styles, that make up a much larger portion of sales. So that focus that started with that kind of aha moment with denim a year ago has carried through to the rest of the business. There's always more work to be done for sure, but we are absolutely pursuing tried and true or that going deeper on those tried and true styles.

Are you analyzing this by region? Are you assessing it down to the region and district levels, or is that part of the opportunity? Also, how did your stock levels compare to where you were last year on those tried and true styles?

Yes. I don't have the percentage from last year regarding the tried and trues, but it was definitely not at 90%. In response to your question about the details, I believe there is an opportunity there. We get very detailed, spending a lot of time in stores to analyze performance at individual store levels. However, I think we may not be adequately considering how we approach this at the district or even regional level. When I visit stores, I often question why certain items are present or absent, and this is a common experience for all of us who visit stores. We may focus too much on the specifics at the store level and need to broaden our perspective to include the district and regional levels as well.

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

So just going back to the price elasticity part of the conversation. Just curious if you're seeing more elasticity in certain categories when compared to others? Maybe is like work showing less elasticity versus fashion?

We haven't observed a significant change in consumer behavior except for one specific brand that increased prices by nearly 15%, which led to a decline in their sales. Although it was a smaller brand, we did notice an impact on their business. Aside from that instance, mid-single-digit price increases did not affect consumer behavior significantly, with the exception of that particular brand that raised its prices substantially, resulting in decreased demand.

Got it. Okay. And then just as a follow-up. Overall, are you starting to see some more new emerging competition in the Western category given the recent strength? And do you also suspect the holidays will be more promotional relative to last year if you take into account some of the pricing actions from third-party brands?

I'll start with the promotion piece. I don't think it will be more promotional than last year. Our promotional cadence is almost identical to what we had last holiday season. This has always been a very rational industry when it comes to promotions. And I think and I believe it will continue to be so. So we are going to have a promotional schedule very similar to last year.

And we haven't really seen any new recent emerging brands come forth. There are always new entrants into the market. I think at times when, in particular, like ladies Western boots become a little bit more in style or fashionable than some of the more mainstream fashionable department stores and others will sell that, and then they'll get out of it if it slows down. But we haven't really seen any significant sizable entrants into the market.

The next question comes from Jeremy Hamblin with Craig-Hallum Group.

And I'll add my congratulations to the team. I wanted to ask a question on just some of the margin dynamics that you're seeing. So last year, fiscal '25, we knew that there was some catch-up on incentive compensation, and you saw pretty nice gross margin expansion. This year, you've got headwinds, obviously, related to tariffs. And yet your gross margin looks like it's going to be flattish. You're getting nice leverage on SG&A. And this is all kind of with comps roughly similar to what you did in FY '25. As we look ahead I wanted to see if there were other dynamics that we need to think about in FY '27, not that you're guiding, but are there other dynamics that we should be considering here as we look ahead into calendar '26, either on the gross margin or the SG&A side? Or do you think that the leverage points here, all else being equal, meaning no meaningful changes in tariffs, would you suspect that, that's going to play out similarly?

I expect the situation to remain quite similar. The leverage points we discussed at the start of the year, such as the buying and occupancy rate at 7%, will likely stay in that range, possibly decreasing slightly. SG&A expenses might increase this year; we just need to maintain them at flat levels, which may rise back to 1.5% or 2%. Overall, these factors should remain similar. There may be some minor quarter-to-quarter fluctuations. I mentioned in my prepared remarks the effects of the reversal of incentive-based compensation that we'll face in the third quarter. However, for the full year, I believe it will appear fairly consistent. Currently, there isn't anything we foresee that would disrupt this outlook.

Great. And then just as a follow-up question on exclusive brands. So you did some testing here over a 6-week period. You're taking a little bit of price to offset some of the tariff implications. But as you think about penetration of that going forward now with the rollout, very successful with codyjames.com, do you suspect that you're going to get a similar type of step-up in your exclusives? Or do you think the combination of maybe price increases potentially limits the amount of growth that you see in that?

I don't think the price increases made a big difference in either direction. Again, that's what we were testing for the 6 weeks and the consumer continued to buy what they wanted to buy, which was third-party or exclusive brands. And so we will pivot post Holiday to preserve margin. I think longer term, we still are comfortable with getting to 50% exclusive brand penetration, 100 to 200 basis points a year over the next several years. And again, the codyjames.com site, while I'm thrilled with the launch of it and the reaction we've had to it, it launched in the last 2 weeks of the quarter. So it's still very, very early days in terms of what it will do for promoting the entire Cody James brand. So more to come there. But for right now, we're still tracking or looking to that 50% exclusive brand penetration over the next 4 to 5 years and 100 to 200 basis points of growth a year. So kind of more back to normal versus where we've been testing over that 6 weeks of lower for longer.

The next question comes from Corey Tarlowe with Jefferies.

Great. I wanted to ask about the store count updated analysis. How do you think about the new stores and where the opportunity is in new versus existing markets that you have line of sight to?

Sure. The last time we provided an update, we discussed our opportunities in both new and existing markets where we had not yet established a presence. Now that we have opened stores across the country, we will continue to do so. Although we won't disclose specific markets where we plan to focus more heavily for competitive reasons, we are very confident in our growth strategy moving forward.

Okay. Got it. And then just on the updated TAM analysis as well. When you updated the TAM analysis a few years ago post doing it for the first time around the IPO, it felt like the positioning around that update was like, hey, we're actually penetrating this whole new customer base called Just Country, and there's this whole opportunity there. And now you've just upped it by another roughly $20 billion, $18 billion. Is there another kind of customer that you're going after? Or what do you see is driving that next leg of growth in the total addressable market?

Sure. It's really the country lifestyle, the Western and the work have all expanded in the size of the TAM. So we didn't provide that in the prepared remarks, but in the analysis that those expanded. And then John mentioned that mainstream denim has become more of what we sell. And so that's given us part of that increase in the TAM also.

The next question comes from Mitch Kummetz with Seaport Research.

Can you guys elaborate on the recent strength of the e-comm business? I mean, John, you referenced the 24% gain in October. What you didn't say is that on top of a 14% gain a year ago, and you've got now showing sequential double digits. So is there anything more you can say about that? What's driving that?

Yes, there are several factors contributing to that 24% increase. We analyzed its sources, and one significant factor is the work done by our new Chief Digital Officer and his team, who have implemented valuable enhancements to search and other aspects of the website, likely contributing over 100 basis points to that growth. However, the main drivers are the new channels, including additional sites like Cody James and Hawx, alongside our increased spending in paid advertising. We've observed changes in the paid algorithms from both Meta and Google recently, which has allowed us to maintain the return on ad spend we're aiming for, exceeding 4, and to invest more in those sales than we could before. Therefore, the growth stems from new channels, paid social efforts, and organic traffic, with about 400 basis points of growth attributed to additional organic site traffic, indicating a strong recognition of the Boot Barn brand. It's a combination of various factors rather than any one specific element.

Thank you for the information. For my follow-up regarding the dedicated exclusive brand websites, is there a chance for you to implement this for other exclusive brands? If so, what kind of rollout timeline are you considering?

There is. We have one for Idyllwind, and we've always had one for Idyllwind since we started that relationship with Miranda Lambert. But we will be rolling out post holiday a site for Cheyenne, which is our other large women's Western brand, and we'll keep going from there. These have gone very well. We like the ability to tell stories in a very different way than we can on bootbarn.com. And so Cheyenne will be launching post holiday.

The next question comes from Ashley Owens with KeyBanc Capital Markets.

Just wanted to start off really quickly with work. I think it comped similarly to what we saw in the first quarter. Would be curious as to if your view on that category has evolved at all, particularly around whether some of the prior headwinds have fully normalized, if there's still more recovery to go. And then I know you've highlighted that comp trends tend to be lower than the rest of the business, but just anything from an opportunity standpoint to further accelerate this comp, especially seeing as work has expanded under this new identified TAM you've outlined?

I am not prepared to declare victory regarding work. We have observed a positive acceleration in comparable sales in October, though it's a small month consisting of only four weeks. Work boots have shown improvement, posting positive comps for two consecutive quarters, and in the first month of this third quarter, they have achieved a mid-single-digit positive comp. Work apparel has also maintained a mid-single-digit comp for at least six quarters. We're performing well in that area. The work boot relay we discussed in the previous call is now complete, though it's only been a couple of weeks. Anecdotally, feedback from store managers, district managers, and customers indicates that shopping for work boots by size and style has become significantly easier. I’m optimistic based on these early weeks. It’s been challenging to differentiate the impact of October's rainy or cold weather on the work boot relay and the mid-single-digit comp, but preliminary assessments suggest that October performed better than the first and second quarters, both of which were positive. We are making progress with work boots, but we are not ready to declare victory yet.

Okay. Got it. That's super helpful. And then just one follow-up on the stores. Count has effectively doubled or essentially going to double from the 301 in '22 to crossing over 600 next year potentially. You've now outlined this new long-term opportunity to double again towards 1,200. Would just be curious as the base continues to scale that quickly while you're managing the added operational complexity that comes with a larger fleet while protecting that culture and some of the in-store standards that have really helped to set you apart?

Yes. No, it's a great question, and it's a challenge. And I think we've done a few things to help manage that. I think for starters, the store operations team has done a really nice job of getting these stores opened, and they're working extremely hard. And as we grow the store base, we add districts. Each district has roughly 10 stores in it. And so we have a district manager over each of those districts, and they're able to help with those store openings. And we continue to train new store managers, whether they're an internal promotion or a transfer, they need less training. And if they come from outside, we'll train those store managers in an existing store to try to help them develop the culture and learn the process operationally. Opening the new stores is heavily reliant on our real estate department and the team that we've got there and identifying these locations and managing the leases and the updates and all different kinds of things that are involved in that, the construction of these stores. They've proven to be just incredible at getting these done, and they will expand as we have more stores that need to be opened and then the folks in the DCs and managing the product flow and the merchant teams. I could go on, but we are careful in how we expand headcount in the company, but we're also very careful in who we hire and making sure that the culture fit works well so that we don't lose the magic that we've got here at Boot Barn.

This concludes our question-and-answer session and the Boot Barn Holdings, Inc. Second Quarter Fiscal 2026 Earnings Call. Thank you for attending today's presentation. You may now disconnect.