Boot Barn Holdings, Inc.

Hey, everyone, and welcome to the Boot Barn Holdings Second Quarter Fiscal Year 2021 Earnings Call. As a reminder, this call is being recorded. Now, I'd like to turn the conference over to your host, Mr. Jim Watkins, Vice President, Investor Relations. Please go ahead, sir.

Thank you. Good afternoon, everyone. Thank you for joining us today to discuss Boot Barn's Second Quarter Fiscal 2021 Earnings Results. With me on today's call are Jim Conroy, President and Chief Executive Officer, and Greg Hackman, Chief Operating Officer and Chief Financial Officer. A copy of today's press release is available on the Investor Relations section of Boot Barn's website at bootbarn.com. Shortly after we end this call, a recording of the call will be available as a replay for 30 days on the Investor Relations section of the company's website. I would like to remind you that certain statements we will make in this presentation are forward-looking statements. These forward-looking statements reflect Boot Barn's judgment and analysis only as of today, and actual results may differ materially from current expectations based on a number of factors affecting Boot Barn's business. Accordingly, you should not place undue reliance on these forward-looking statements. For 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 of fiscal 2021 earnings relief, 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, Foodborne's President and Chief Executive Officer. Jim? Thank you, Jim, and good afternoon.

Thank you, everyone, for joining us. On today's call, I will review our second quarter results, update you on our current performance, and walk through each of our four strategic initiatives. Following my remarks, Greg will review our financial performance in more detail, and then we will open the call up for questions. Before we begin, I would like to acknowledge the entire Buparn organization for their continued hard work and execution as we navigate through the current macro environment. The team has adapted quickly to the ever-changing nature of the pandemic and has done a tremendous job serving our customers while focusing intensely on maintaining a safe shopping environment. I continue to be humbled by the culture of the company and am grateful to be a part of this wonderful organization. We are very pleased with our second quarter results, which exceeded our expectations. Beginning with our top line, net sales were down 1.4% from a year ago, with same-store sales decreasing 5.1%. Given the environment and the many pressures on the business, our ability to nearly maintain our sales volume year over year was quite an accomplishment. By channel, same-store sales in our retail stores declined 9.1%, and e-commerce same-store sales increased 17.6%. Following a slow start to the quarter due to an increase in COVID cases in several of our key states, same-store sales growth improved sequentially each month of the quarter, and has continued to increase during October. Consolidated same-store sales declined 9.8% in July, 8.9% in August, before turning positive in September, increasing 1.3%. The acceleration in consolidated same-store sales was driven by sequential improvement in our retail stores. As we mentioned on our last quarter's call, we have seen a correlation between consumer sentiment around COVID-19 and retail store sales. From a margin perspective, our second quarter merchandise margin was strong in both stores and online. We have maintained our full price selling philosophy with minimal markdowns and promotions, resulting in growth in product margins, which helped to partially offset the leverage of buying and occupancy costs, higher freight expense, and margin headwinds due to channel mix. Once again, the merchandising team has done a great job of navigating through the many challenges in the retail environment and has us well-positioned from an inventory standpoint without incurring margin pressure due to product markdown. The strong full-price selling combined with our recent cost reduction efforts resulted in second quarter net income of $5.8 million, or 20 cents per diluted share. This was better than our expectations and compares to $7.7 million, or 26 cents per diluted share, in the prior year period, which included a 2 cent per share benefit due to income tax accounting for share-based compensation. Given the challenging macroeconomic environment, we are particularly encouraged by our bottom-line performance in the quarter. I'd like to now provide an update on current business. We saw continued improvement during fiscal October as same-store sales in our retail stores were flat to last year, and our online sales remained very strong. While work boots continue to be our strongest performing category, we're also encouraged to see more broad-based growth across other categories, with momentum building in denim, hats, and western boots, all of which are now counting positive quarter to date. I would now like to provide an update on each of our four strategic initiatives, beginning with driving same-store sales growth. During the quarter, we saw significant sequential improvement in the retail stores business, improving from a same-store sales decline of 15% in July to slightly negative comps in September and further improving to flat comps in the month of October. While we experienced several headwinds related to COVID-19 that impacted sales transactions during the quarter, our underlying business remains solid. Low oil prices impacted employment in some of our markets, most notably in west Texas, while COVID-related restrictions have slowed travel in some of our markets that benefit from tourism. Additionally, events such as rodeos and concerts have been canceled across the country. These events typically provide a catalyst for our customers to get into our stores and purchase boots and apparel in preparation for attending the event. Despite these COVID-related challenges, we were able to improve our retail store, same-store sales from a decline of 27% in the first quarter to a decline of 9% in the second quarter, ending the month of September with essentially flat store comps. The improvement in the business showcases the strength of the Boot Barn model and our customers' affinity for our in-store shopping experience. From a merchandise perspective, work boots continue to be our strongest performing category. Sales of non-flame-resistant work apparel were up in the quarter as our core customer purchased functional products for their work needs. In contrast, demand for our FR work apparel business was soft due to high unemployment for our customers working in the oil and gas industries, which pressured same-store sales at some of our stores in Texas and other oil-dependent markets. In addition, sales of both men's and ladies' Western boots and apparel declined during the quarter. From a marketing perspective, upon the onset of COVID in the spring, we adjusted our media mix by placing more emphasis on digital and pay-per-click advertising while pulling back on direct mail and radio spots. Now with the business returning to a more normalized composition with stores returning to a penetration of more than 80%, we have reverted back to our more traditional marketing program, which includes radio, television, and direct mail, in addition to the digital marketing that we have had in place. From a customer segmentation perspective, In addition to marketing spots targeted at our work customers, we are refocusing on our core Western and fashion segments, especially during the holiday and gift-giving season. We've also recently expanded into a new segment called Just Country. This new segment extends our customer reach to those who don't live a core Western lifestyle but fit into a rugged, outdoor, adventure enthusiast, and recreational category. Recognizing opportunities to expand our product offering to those living in an increasingly more outdoor lifestyle and in line with our Just Country segmentation, our merchandising team has broadened our assortment of hiking boots, outerwear, and outdoor footwear and apparel. Inventory in these expanded product categories has started to build. We expect this offering to draw new customers to the brand and expand our share of wallet with existing customers. From an operational perspective, essentially all of our stores are open today with normal hours of operation. We continue to promote a safe shopping environment with the use of face coverings, plexiglass partitions at the registers, and social distancing. We've also made terrific progress in recruiting and hiring much of the seasonal staff that we will need for the holiday build and business. As we look forward to our holiday quarter, we feel great about how we are positioned from a merchandising, staffing, and marketing standpoint to handle the holiday surge and to react to whatever challenges are presented by the external environment. Moving to our second initiative, strengthening our omnichannel leadership. During the second quarter, e-commerce same-store sales increased 17.6% and our continued focus on e-commerce profitability We have a more than 100% increase in operating income. Our increase in sales was driven by both new and existing customers. We are focused on stepping up our efforts to add more new customers and optimize conversion across each of our online platforms. The majority of the online growth we saw during the quarter was driven by a 42% increase in sales on boot barn.com with a healthy year-over-year increase in both traffic and conversions. Sales at BootBorn.com now make up more than 50% of our e-commerce business. While e-commerce sales in the rest of our online business were down low single digits year over year, we have seen significant improvement in e-commerce profitability, partly as a result of the rebranding of the Shepard's.com site and the associated changes we made in our promotional posture to reflect a more full-price selling model. The ongoing changes we have made and our focus on increasing e-commerce profitability are have not only greatly improved our bottom line, but have continued to narrow the margin differential between the stores and online channels. We are making improvements to our omnichannel capabilities and believe the enhanced capabilities will enable us to continue to meet our customer shopping needs during these unusual times. We now offer a variety of omnichannel options, including our endless aisle WIP tablets, rangefinder tool, buy online, pick up in store, and curbside pickup. We are pleased with the success we have seen in recent weeks with our buy online, pick up in store sales as some of our customers have adjusted their shopping habits. We recently added additional capabilities to our e-commerce business, including fulfillment of e-commerce orders from our stores and same-day delivery from our stores. We believe these enhancements provide us with additional competitive advantage, including same-day delivery of holiday gifts, purchased on our sites, which will extend our online shopping season several days longer than traditional direct-to-consumer players. Additionally, in the coming weeks, we plan to launch virtual clienteling, which will allow our customers to shop from home while video conferencing with an in-store expert stylist as their virtual shopper. While still in the early days, we are encouraged by the performance across each of these platforms and expect them to provide incremental sales and enhanced customer satisfactions. especially as we head into the holiday shopping season. From an e-commerce fulfillment perspective, the upgraded automation and enhanced warehouse management system added to our distribution center over the last few years has reduced picking times and shortened the time from order to delivery. These changes, along with expanded capacity at the fulfillment center that has recently been added, have us well prepared to fulfill essentially any type of online demand during the busy holiday season. Now to our third strategic initiative, exclusive brands. During the second quarter, exclusive brand penetration grew to 24.9%, an increase of more than 350 basis points compared to the prior year period. This growth is a testament to the high-quality product offering and the overall brand receptivity we have seen with our customers. As a reminder, our exclusive brands are created and nurtured as true brands and not as inexpensive alternatives to third-party brands. This focus on brand development has positioned Cody James and Cheyenne as our number two and number four top-selling brands in the store. We believe our exclusive brands, in combination with the assortment we offer from third-party vendor partners, will continue to drive traffic to our stores and our e-commerce sites and further develop loyalty from our customers. We expect to see continued growth in our exclusive brand penetration in the range of 200 to 300 basis points during the current fiscal year. Finally, our fourth initiative, expanding our store base. We opened one new store during the second quarter and an additional store in October, bringing our total store count to 266 stores. We plan to open in both new and existing markets and continue to target a total of 15 new store openings in fiscal 2021, including the seven stores opened year-to-date. We are very encouraged by the performance of the newly opened stores, particularly those in new markets. This strong performance, despite the challenging macro environment, underscores the strength of the business model and further validates the significant opportunity for us to continue to open new stores with attractive returns going forward. While we have intentionally slowed new unit growth this fiscal year as a result of COVID-19, we remain confident in our long-term ability to expand our store base by 10% or more each year in a more normalized external environment. I'd like to now turn the call over to Greg Hackman.