All right. Well, thanks, everyone, for joining the next Fireside Chat. I always enjoy speaking with the Boot Barn team. On stage with me, we've got Boot Barn CEO, John Hazen, as well as CFO, Jim Watkins. And with that, John, just any opening remarks before we get into the Q&A?

Yeah, just a few remarks. We recently completed our fiscal 26 at the end of March. it was it was a it was a great year comps were plus seven over two billion dollars in sales and opened a record 80 new stores in the fiscal year which was which was great we're now into our fiscal 27 and have four weeks left to go in q1 and we're pleased to say that we're tracking to the high end of our guidance for the quarter so a nice start to this fiscal year as well yeah that's that's awesome to hear.

Obviously, you've been one of the best compers really since you went public. The company's had a lot of momentum. Can you just level set the health of your consumer? You know, what are they buying? How are you seeing that translate into comps, you know, across categories, both in the quarter as well as the past few? Sure.

Yeah, there, you know, there's a lot of discussion out there, of course, right now around the K-shaped economy and the consumer and the strength in our consumer is broad-based. We look at it every quarter across all the different demographics you'd expect, income bracket, careers, professions, and our consumer is healthy across really all of the bands. When we look at it from a merchandise category standpoint, that continues to be broad-based as well. I'm pretty pleased with the accelerated comps the last four quarters in Workboots. It was one of the adjustments I was making coming in as CEO that we were going to reinvigorate the Workboot business. And that continues to perform well and comp ahead of the chain, which is great. And otherwise, it's broad-based growth across all major merchandise categories.

And so with that, one of the big investor debates that we continue to hear is just the strength and where we are in the Western cycle. What's your take? You know, there's a lot of sort of news flow around Western. You know, is it sort of continuing to run hot? Is it sort of normalizing, slowing? Where do you think Western is standing today?

You know, when we look at the boot barn customer and who shops in our stores, our customer builds America. they feed America, they protect America, and much of what they buy is needs-based. We think it's north of 60% of what's bought in our store is worked in, whether you're in agriculture or in construction, oil and gas. And so while country music is more popular than it has been in a while, I must acknowledge that, we think our business is just much more of a needs-based business and and not trend driven a little a little popularity in country music doesn't hurt of course but our customer needs to buy product that they purchase at a boot barn store so piggybacking off of that for a lot of investors in this room that maybe haven't spent a lot of time you know in your core markets how should we think about your consumer what you know what do they look like what are their spending habits what drives their purchases yeah our our customer is uh on average a 47 year old male makes household income 75 to 80 000 a year uh usually working in a in blue collar farming ranching agriculture uh and uh you know needs our product on a regular basis and one example i always love to give is uh is when When it's raining or the weather is wet, you'll see folks come into the store and put a pair of boots on the counter or bring a pair of boots to buy to check out and take off the ones they're wearing and put the next pair on. This is a purchase they need to make. They need our product to work in. And when you start to think about discretionary purchases and spend, it'll likely be one of the last things they cut back on as they need it for the work that they do.

And so with that, I think one of the most impressive aspects of the company since you've IPO'd is you came out with a plan. There's sort of four pillars and you've stuck to it. You haven't had any endless days, any sort of pivots. What's allowed you to execute for the past decade plus and continue to drive these strong comps?

Yeah, our four strategic initiatives have been in place long before. I only learned this a couple of years ago. I knew they were in place at IPO. They were in place long before the IPO. We were talking to a former consultant. But opening new stores, same-store sales, margin expansion, and then omni-channel, as we call it, for all the digital initiatives. have been our four strategic initiatives for many many years and it's uh it's the focus of the team to not you know uh be lured by complexity complexity is attractive people think it's more interesting and uh and we always kind of root ourselves back to those four initiatives we have a strategy session each year where we come up with lots of other ideas and wouldn't it be interesting if we did X, Y, or Z, and we come back to the best thing we should focus on is continue to open new stores and drive traffic into existing stores to drive those comps. Outside of oil in 2016, where it went from $100 plus a barrel down to $30 a barrel, and then the ebbs and flows post-COVID where we had a plus 54 year and didn't know if we were going to hang on to all of that and hung on to virtually all of it um we we've been since ipo kind of comping the comp year in and year out and and proven over and over again that we can do that um so we feel good that we focus on on you know the four strategic strategic initiatives alongside the the three adjustments that i've made to the business which is sourcing exclusive brands and reinvigorating that work business we'll continue to kind of comp the comp and we've got this year from a two to four for at the high

end and feel good about it and so with that uh jim bringing you in but can you maybe uh frame for us sort of the the background and how you thought about um providing the comp guy that you did both for one q as well as the full year how are you thinking about transactions versus inflation you obviously took some price across both national brands as well as your exclusive brands last year So how do we think about the wrap of that and then transaction alongside that?

Sure. The guidance for the year we developed based off of the most recent sales coming into the year, similar to what we do year in, year out. Last year, there was a little more uncertainty in the market around the implementation of tariffs and what that would do to demand and the customer psyche throughout the year. And so we had a haircut that we talked about in the second half of the year. As we got into this year, we feel pretty good about what we've done just using the February, March, and April sales trend and rolling that out using historical seasonality, knowing that we haven't factored in any changes in the macro. As far as looking at the different components of the same-store sales, we've guided the year from an AUR increase of 2% to 3% of the year, which is a little elevated from what we normally see on AUR. But that's really a result of a couple of things, primarily being the price increases that we took last year and having a full year impact of those price increases. And we talked about reduced promotional activity this year as well, which would also keep the AUR up a little bit more than normal. Just we have markdowns that are, as a percent of inventory, are pretty low, low compared to historical standards, pretty much in line with last year. But we think that we'll need to run fewer promotions or promotions that aren't as deep as what we did last year. And so that's also a help to the AUR. And so then you look at the stores comp guide at the high end of the range being a plus three and AUR up two to three percent. which implies transactions being flat to up 1% is how that plays out. And we've guided that pretty – we haven't guided the year throughout the year, but we expect that to be pretty consistent throughout the year.

And so with that, obviously, the year has started well. I think you've actually already now comped some of your toughest compares, or at least the vast majority of them. So what sort of confidence does that give you, although we are early, that, hey, we're actually on a roll, things are going well for us, we're continuing to execute well, and the compares do, for the most part, get easier in the months ahead.

Yeah, it's always nice when you start the year off with two months and you're in line with the high end of the range, it gives us some confidence that we can comp the comp and that the guide that we've put out there is an achievable guide. And so we're feeling pretty good about where we are sitting today.

And so with that, a lot of the strength that you've seen is coming from denim, both on the men's and the women's side for a number of quarters now. As you've noted before, you're becoming a denim destination. You know, maybe talk about how you were able to get there and some of the compares that you're lapping are really, really impressive. So what sort of gives you the ability to be able to comp the comp versus, you know, strong double-digit growth that you've seen for a few years now?

Yeah, wrapping this into your earlier question about trends, one thing to note about our denim business is both on the men's and women's side, so much of the denim we sell is core bootcut denim. Our number one denim style, I was looking at this the other day, has been in the assortment for over five years. So it's the same style that we have sold for many, many years. And if we look even at our women's denim business, uh and the question of you know fashion denim the denim that that we call fashion at boot barn if you went into many of the department stores in nordstrom or some other store here in the city um they would say that was out of fashion years ago so even the things that are a little more fashionable in the boot barn world are not necessarily what you it's not contemporary denim by any means the secret has been the buying team and the merchants and i've got to give them credit they have gone deeper on what is selling which is is a pretty narrow set of denim as i mentioned that continues to sell year after year after year so they've focused on being in stock having more inventory having the confidence as we've gotten to 550 plus stores to make bigger buys and be you know admittedly they were a little uncomfortable uncomfortable being this in stock as we were going into holiday a couple of years ago and and with some encouragement they gained that confidence to to make stronger more confident deeper buys in that denim so i think the demand was always there it was just being able to service the customer with the right right size and depth right and so with that tying some of the comments that uh that you guys have

said earlier but you've run you know an essentially full price business you sell sort of core type of staple products what else is sort of you know part of that magic that allows you to not only be predominantly full price but continue to go you know further and further towards running that full price business yeah it um it it's focusing again on these core styles we you know there's always newness in the business.

You can never not have spring and summer floor sets and fall floor sets. So you come into a boot barn three, four, five times a year, the store will feel new to you on each visit. As I talk about these core assortments, it doesn't mean that we don't have freshness on a regular basis. So it's really that balance between being able to service that replenishment needs-based customer while making the shopping experience feel new every time you come in. And we all know that feeling. You walk into a store that you love and you look around to see is something different? Is there something interesting going on? And the visual merchandising team, the merchants, the marketing team, they do such a great job of balancing between the newness and the replenishment.

Yeah, and so with that, there's a lot of things going on on the cost side now. Jim, can you maybe talk about the key puts and takes for gross margin because there's obviously a lot of the costs are increasing both for SG&A as well as grosses, but you also have some shifts as well as compares to consider. So maybe just what are the key puts and takes that we need to know about for gross margin?

For the full year, we've guided at the high end of the range our merchandise margin to expand 50 basis points and we've if you break that down it's about 35 basis points of that is is related to our buying economies of scale of scale reduced promotional environment that we talked about earlier 10 basis points of a freight tailwind and five basis points from exclusive brand penetration growth and so we've talked a lot over the years about the exclusive brand penetration growth and and as we have a better margin profile for the exclusive brands is we we grow the penetration 50 basis points of what we're guiding this year that we'll we'll see some margin lift from that that's that's embedded in the guide on on the freight side of things we've seen some some nice improvement in in some of our contracts that we've had with some of our logistics partners and transportation providers and that sort of thing and and so we've been able to offset some of the the increases that we've seen in transportation costs given given the negotiations that the team has done and getting some better rates and so that's really benefiting us um and should help us this year if if uh transportation costs and and uh gas prices and some of the other macro driven things uh you know get get worse throughout the year then that's not embedded in that guide but if things stay pretty similar to where they are today we feel pretty good about having some improvement in margin from freight and then the balance of it is is really just better better buying working with our vendor partners on getting the discounts in line with where we think those should be and improving those working with our factories the the sourcing department helping out with negotiating with our rates overseas and getting some volume discounts and and as john mentioned earlier when when we buy better and we're buying the right product and then that helps us from a markdown perspective and and that all goes into that margin rate And so with that, on the high end, you are still guiding some margin expansion, even with some of these puts and takes and increased costs.

How should we think about the medium to longer term growth trajectory of your EBIT margin? Where do you think that can head over time?

Yeah, so this year we've got EBIT margin expanding 20 basis points at the high end of our range, and that's really a result of merchandise margin expansion, some pressure on the occupancy from the new stores as to be expected, but some leverage on the SG&A also. And so assuming we hit the 20 basis points this year of expansion, it's 160 basis points, I believe, over the last three years of EBIT expansion as we march toward our goal of 15% operating margin. This year, the high end of the range, that takes us to 13.5%. So we think we've got a few years to go before we get there, But the ability to grow new units at a nice, fast clip and having the strength of the merch margin expansion and some leverage on some of the fixed costs and SG&A, it's nice to see that margin opportunity continue as we go through the next few years.

And so when we put your guide sort of top line margins, we put it all together, where do you see more versus less conservatism in the guide as we think about potentially where, you know, you may come in ahead or a little below?

Yeah, I don't know that I'd use the word conservatism in the guide, but I think as we look at the different opportunities to hit the high end of the guide or even exceed the high end of the guide, it really comes down to the same store sales growth and a strong consumer who continues to shop with us. Embedded, as we talked about earlier, is transaction growth that is decelerated from what we've seen the last couple of years. And so if the transactions continue, and we're doing some nice things with traffic counters in the store and focusing on conversion. We have an outstanding store operations team that is really working hard to service those customers who do come into our store. I think there's some opportunity there that we're going after. We're not guiding it beyond that flat to up one for the year, but there's an opportunity there. I think the teams everywhere are hustling to try to keep costs down and try to drive margin. And so there are lots of places for improvement and everyone's working on that. But I think we've also got a guide that's out there that's fair and challenging. And I wouldn't call it conservative at this point.

Sure. No, that's fair. John, I just want to pivot to your exclusive brands. Obviously, the team's done an incredible job. You're a little above 40% now. You've talked about the path to 50% over time. Where do you still see the biggest opportunities to increase your penetration?

I think it's driving awareness of the brands broadly, and that's what we're doing this year with the marketing of the exclusive brand websites. Cody James on its own would be one of the bigger brands in Western if it was sold at wholesale just on the business it does alone for us at Boot Barn. And so driving, you know, the storytelling, the product discovery, the brand discovery of Cody James and Idlewind and Cheyenne and Cleo and Wolf and Hawks is one of the ways we're going to keep pushing that penetration. People are going to discover the website, discover the product via a large push into meta advertising with Instagram, and then realize, if I want to buy that product, I should come to a boot barn store. Again, we don't want to, you know, it's a nice side effect if we drive some incremental business on codyjames.com or some of the other exclusive brand sites, but the number one goal is to make consumers fall in love with the brand, fall in love with the product, and then come to a store. The best representation of Boot Barn is walking into our store. It's the merchandising. It's the customer service from our store team. It's the smell of leather in the stores. That's what is the ethos of Boot Barn. So we think we can keep pushing on exclusive brand growth broadly through those marketing initiatives.

And with that, I think it was start of last year that you brought on a merchandising team for the exclusive brand side. I think last year they sort of had a pivot, focus on tariffs, given some of, you know, the changing supply chain environment. Just can you talk about early progress? What have you seen out of that team?

And I think in the past you've talked about that the merchandise margin opportunity in exclusive brands is actually as big as mixing up from low 40s to 50 percent. the um yeah our exclusive brands right now are we we say publicly uh and it's a thousand basis points more than third-party brands roughly and and so um i spent much of my career on all my career before boot barn working for brands uh not a retailer and was very familiar with kind of the imu footprint that you see as brand sell wholesale or sell direct and when i was named interim uh the chairman asked me what do you what do you want to do differently and uh i wanted to build a sourcing department i thought there was opportunity there it was it was the first adjustment i put in place and so we started to hire a sourcing team starting with a head of sourcing made a great hire as a head of sort with a head of sourcing and she started to build her team out and lo and behold uh liberation day occurred we had no idea uh we really didn't know liberation or tariffs were coming at the level they were and a little bit of luck and serendipity there but that we had some of the team in place quickly built out the rest of the team and they spent the next year doing an incredible job navigating a very fluid tariff environment gaining concessions from our factories preserving merchandise margin and dealing with everything that was involved in in post-liberation day now that that is settling down. The team is pivoting to trying to grow that margin, which is what they were hired to do originally. That, of course, has been delayed by all the work they've been doing this year, and most of that benefit will occur in late fiscal 27, but really our fiscal 28 years where we'll start to see some of those gains from the work that they're doing. We think it'll be 100 to 200 basis points of exclusive brand margin expansion. It really comes down to us going factory direct and we needed agents when we were building our exclusive brand business uh we couldn't have done this on our own so it was the right choice at the time and as the business is scaled we now want to go factory direct and that's really what the team's been working on is developing those relationships with the factories going through re-costing exercises figuring out where we can source raw materials for the factories, given our scale and our buying power. Very, very happy with the progress the team's made.

Yeah, no, that's exciting. And I think one of the other sort of really exciting parts of the story is your store growth, right? You recently increased your TAM. You've done this a number of times now. You're continuing to open at roughly 15%. What sort of, you know, gives you the confidence that, you know, the TAM is the right TAM and that you're going to be able to continue to grow stores at this pace? You are becoming one of the fastest growers in all retail.

Yeah, we had three kind of data points, and the third one matters the most, so I'll spend the most time on that in a moment. But quickly going over the other two, we hired a third party to look at the TAM, and TAM's important. We upped our TAM from $40 billion to $58 billion. and about six billion of that was a component of mainstream denim the rest was a lift and work in Western and just country so that was one data point we then had the same firm look at designated census market areas and and map out by market where they think we had opportunity to grow the store base they came up with a number that was close to that 1200 number but what really gave us the confidence is we've got a couple of partners at boot barn executives our head of real estate and our head of stores who are both very very experienced and and i have the utmost trust in their opinion on where and how we should grow stores they both individually spent the time to map out by market where we saw opportunity and both came up with a number very close to that 1200 number so the confidence comes from the internal team backed up by the third-party study around TAM and market.

And as you're opening these new stores, how are you sort of thinking about where to put them? Is it infills? Is it newer markets for you? How are you balancing that?

Yeah, now that we're in 49 states, and Hawaii will come at some point, but we're in 49 states. The idea of infill versus new market, just for context, we kind of think if it's more than 50 miles away from a from a boot barn today it's a new market at this point it gets a little fuzzy as as given our footprint um it's a mix we uh will continue to add stores in legacy markets in arizona and california uh and in texas and we're opening stores in in all of those states in in this fiscal year and they continue to perform well and then we're seeing nice performance in rural as well as urban areas. We have a store in Jersey City. We have stores, three stores on Long Island now, Riverhead, Bohemia. And so it really is broad-based from rural, exurb, suburb, and then some urban as well by geography. We're making some nice inroads really across the entire country at this point.

And so with that, I think one of the interesting pivots that you made this year is you are opening two stores in very high high volume areas what was sort of the the back story with that why is now the right time i believe nashville might be your highest volume store so should we expect more of these uh locations such as the vegas strip that you'll be opening uh later this year and how are you thinking about these uh more prominent locations yeah it's it's interesting we've had this question a few times uh today around these bigger stores the the ironic part is both of these new stores are going to be higher volume stores but their footprint is below our average footprint uh in one case significantly so one of the stores is already open it's at the

citadel in southern california uh kind of a unique model we are in a very very high traffic uh outlet mall south of downtown los angeles and it's a 5 500 square foot store um and that that is right a target market for boot barn it's it's a heavily hispanic market it's near a lot of working class blue-collar neighborhoods in the los angeles area and it has the the traffic that comes with a factory outlet so that that store is off to a great start but it's not a flagship if you if you went into that store it would look like a regular boot barn but much smaller it would look like a store we have in the stockyards probably about the same square footage vegas was an interesting opportunity this store will will be likely the the best looking store in the boot barn chain uh it is an opportunity that that came about in in a center where um there's going to be a netflix experience upstairs and an in-and-out burger a very very big in-and-out burger so that's going to drive a lot of foot traffic to the center uh you're going to enter this boot barn off of the sidewalk you're going to walk through a canyon there'll be shadows of of horses dancing through the canyon uh it will be a unique experience and um and a great branding opportunity for us in vegas where the national finals rodeo is held every december uh and and we're racing to get that store open in time for the finals this this coming december um that's really a one-off this was a a unique opportunity that came about we're excited about it it's not a marketing endeavor we we wouldn't have opened the store if we didn't think it was going to make money and contribute it's it's that's our expectation and uh at the same time it's it's going to be kind of a a nice feather in the proverbial cap of uh of boot barn and and really stand out on a las vegas strip where we already have several stores we have another store two two stores actually on las vegas boulevard as well as stores in summerland and elsewhere in vegas but this will be a great store for us but we're not shifting to you know five or six or seven flagships this was really a one-off opportunity and typically don't talk about individual stores

much at much at all on the earnings call i think it was really an opportunity for us to just talk through some of the the occupancy expense and as we were leading into some of the leverage points and stuff to explain why we had some unique increases in in occupancy for the year just the build out of these stores particularly well so that's where i was going to go next uh when you announce 10% as the buying and occupancy leverage point that obviously caught people by surprise, sort of, you know, can you walk us through the step up from 7%, which was already quite high last year, to 10% this year? You know, do we think about that as a one-off and that potentially should start step down beginning of next year? Or what are all the factors that we should consider as we do think about modeling buying and occupancy for the next few years?

Yes, so you're right. It was 7% last year. It stepped up a little bit for part of the reason between these two stores. We had some additional rent related to a lease renewal of one of our distribution centers. And so there are a couple of things that increased that higher than what we had thought. I think also having opened so many stores so quickly, 25 a quarter this quarter in the last couple of quarters has really created a lot of new stores in that new store, $3.2 million sales range. And so that just adds to the occupancy number of stores where the occupancy rate of sales is a little bit higher. And so we put a slide together, slide nine in the investor presentation, trying to walk through some of the puts and takes and how that works. So we're actually pretty happy to see the stores performing so well, the new stores performing well, and that we've been able to open so many of those. I think that the occupancy leverage point probably stays somewhat in that seven or eight range as we move forward. What we really try to focus more on is our ability to leverage EBIT back to our discussion earlier. At a plus three comp this year, we've got guided to be our EBIT leverage point. And so we'll be beyond that this year is our expectation at the high end of the range. So I love that the stores are all making money and happy to have the occupancy discussion around the leverage point if it means we're opening so many stores.

Sure. Yeah, no, that that makes sense. John, you sort of touched on it. I think when you took over in the CEO seat, one of the things that you really focused on is just the nimbleness around marketing. It seems like you guys are doing a lot more across channels. Obviously, you know, TikTok, you've made pivots elsewhere in social. Sort of where is your focus today on the marketing side? Where do you see the biggest opportunities ahead?

Yeah, I'll call out a couple of them. One is around what Meta has done lately. Again, you use Google or traditional PPC or pay-per-click and what Instagram and TikTok do very differently. Much of the e-commerce sales driving ads are around someone typing in cowboy boots and they see an ad for cowboy boots. And that's why those ads perform so well. But the intent has to be there already. With Meta and TikTok, you have the ability to help the consumer discover your brand and your product. And it's the one place where people don't mind being interrupted by ads. The same is not true on YouTube. It's not the same when you're browsing the New York or reading the New York Times online. But when people are scrolling through Instagram and TikTok, they're open to targeted ads, the ads that are relevant to them and brands they may like or they have some connection to or they may like similar brands. And what Meta's done that's so interesting is the AI-driven audience building. For many, many years, and since business managers started with Meta, you would build your audiences manually. You'd say, I want to target someone who's 35 to 45 who lives in Texas and is a male, and we want him to see these three ads, and we'd do the same for a female. Now what you do is you type in natural language, look, we're a Western brand. We sell Western and Americana-inspired apparel, and we'd like to target folks who might be interested. You don't even get as specific as folks who might drive a pickup truck, and they build the audiences for you. So that's where there's been some white space around building that discovery top of funnel on the meta side. The other opportunity is around TV. We're going to be doing some things differently in how we market from a linear TV standpoint going into Father's Day, which I'm excited about. So not going to share all the details here on this webcast, but excited about the opportunity in TV as well.

And so with that, maybe last topic, but we have to touch on AI. Can you just talk about what you guys are doing, both on the revenue side and I think maybe more interestingly on the cost and the efficiency side?

Yeah, I'll actually tie both of those together. We've got many AI use cases from photography internally to how we analyze data to how the accounting and the finance teams are using them in leases. I could go on and on about AI and efficiencies. But when we think about sales driving and we think about the real kind of opportunity, the one that excites me the most is our exclusive brand team. Our exclusive brand team, as most designers do, design product and illustrator, they sketch out the product, they maybe have some swatches, sampling is always a long process, not always ready in time. And they have to sell our buyers on why they should buy this particular product. Well, the creatives in our exclusive brand team, which you wouldn't think would be some of the first to embrace AI, are now building out what looks like a regular live fashion show with the styles that are simply sketches and fabrics using AI now. And so the buyers can see what that product looks like, how it's going to drape on the body, what the real vision of the designers are. And that's not always easy for a buyer, right? They're not designers at heart. So for the exclusive brand team to embrace product design and building out virtual runways in AI, which is going to drive sales and exclusive brand penetration as we can design quicker, convey the vision quicker, and encourage the buyers to go deeper on some of those exclusive brand styles, I'm incredibly proud of what they've built.

That's fascinating. First time hearing that. So that's certainly exciting. with that we're out of time so I John Jim thanks a lot thank you having you guys on stage