Boot Barn Holdings, Inc.

Good day, everyone, and welcome to the Boot Barn Holdings third 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, Senior Vice President of Finance and Investment Relations. Please go ahead, sir.

Thank you. Good afternoon, everyone. Thank you for joining us today to discuss Boot Barn's third 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 the number of factors affecting Boot Barn's business. Accordingly, you should not place undue reliance on these forward-looking statements. For a more thorough discussion of the risks and uncertainties associated with the forward-looking statements to be made during this conference call and webcast, we refer you to the disclaimer regarding forward-looking statements that is included in our third quarter fiscal 2021 earnings release, as well as our filings with the SEC reference 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, Blue Barn's President and Chief Executive Officer. Jim?

Jim Conroy Thank you, Jim, and good afternoon. Thank you, everyone, for joining us. On today's call, I will discuss the highlights of our third quarter results briefly walk you through each of our four strategic initiatives, and then provide an update on current business. Following my remarks, Greg will review our financial performance in more detail, and then we will open the call up for questions. We are extremely pleased with the strength of our third quarter results through what continues to be a difficult macro environment. During the third quarter, consolidated same-store sales increased 4.6%, cycling a 6.7% increase in the year-ago period. Same-store sales on our physical locations returned to positive territory, increasing 1.9%, with growth driven by an increase in basket size, which more than offset a mid-single-digit decrease in transactions. Our e-commerce business remained strong during the quarter, with sales up 16.3% over the same period last year. Importantly, our momentum accelerated as the quarter progressed, with same-store sales up 1.7% in October, 4.3% in November and up 6.2% in December. The sequential improvement each month was primarily driven by store comps improving from approximately flat in October to up 3.3% in December. We are extremely pleased with the return to positive comps in our brick and mortar stores, particularly in light of the pandemic. From a margin perspective, our third quarter merchandise margin remained strong both in stores and online, resulting in consolidated merchandise margin expansion of 150 basis points during the quarter. The strength in merchandise margin was driven by better full price selling and reduced promotions. It is a testament to the ongoing strength of the brand that we can continue to grow top line sales without resorting to discounts or promotions to drive traffic. The combination of strong full-price selling, reduced promotions, and expense management resulted in third-quarter earnings per share of $1 compared to $0.85 in the prior year. When adjusting for the tax benefit from share-based compensation in both years, we grew earnings per share 22% to $0.99 compared to $0.81 in the prior year period. I'm extremely pleased with our earnings growth despite ongoing headwinds from COVID-19, including pressure in oil and gas markets, reduced tourism, rising case counts across the country, and the ongoing lack of rodeos and concerts. The fact that we grew earnings per share more than our long-term growth algorithm of 20% while facing the adversity associated with COVID and softness in oil markets truly speaks to the strength and diversity of the business. 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 sequential improvement in the retail stores business with the stores returning to positive comps and gaining momentum through the month of December. Our same store sales results during the quarter were fueled by sequential improvement across each of the three geographic regions of stores. The west region, which includes California, continued to outperform and posted solid year-over-year growth. The south region, which includes Texas, showed the most sequential improvement of the three regions from Q2 to Q3, but remained negative with respect to same-store sales growth. The north region delivered same-store sales that were nearly flat for the quarter. From a merchandise perspective, we are encouraged by the broad-based improvement in category performance. Every major category, with the exception of work apparel and men's western boots, grew versus the prior year. Work boots remain our strongest performing category with growth in both lace-up and pull-on styles. Additionally, we saw healthy growth in kids' boots, hats, and belts, as well as both men's and ladies' Western apparel, which were driven by solid gains in denim. Demand for our FR work apparel business was soft in the third quarter as a result of top-line pressure in many of our oil markets, while sales of non-flame-resistant work apparel showed positive growth as the customer's need for functional product continues to be healthy. We believe a portion of the sequential improvement can be attributed to the work done by the merchandising team in both managing the challenges of the supply chain and in embracing the new just country customer segment. They have moved swiftly to capitalize on the trend toward being outdoors and dressing more casually and have augmented the assortment considerably to capture a broader market share. As part of these efforts, we have invested in more inventory of hiking boots, outerwear, and casual footwear and apparel, which have started to gain traction. From a marketing perspective, we feel that we had an appropriate balance between our digital advertising and our more traditional marketing programs that emphasize radio, television, and direct mail. These efforts helped to greatly minimize the decline in store traffic due to the pandemic and helped to drive considerably more traffic to BootBarn.com. From an operational perspective, our stores team performed extremely well during the holiday shopping season. We were very planful with our approach and were able to successfully hire seasonal associates to help with the increase in sales volume. I must further commend the stores team, which faced a decline in customer traffic in the quarter, but was able to achieve positive same-store sales growth through a healthy increase in units per transaction. Based on the level of customer service and salesmanship that they provided, we saw transaction size grow by 6% with a nice increase in sales of add-on items, including boot accessories, ball caps, and belts. This achievement was further notable given all of the operational and staffing challenges that they faced due to COVID. Moving to our second initiative, strengthening our omnichannel leadership. During the third quarter, e-commerce same-store sales increased 16.3%, with our focus on e-commerce profitability driving an approximately 80% increase in operating income. From a brand perspective, Boot Barn.com sales were up 37% during the quarter, with the balance of our e-commerce sales declining, largely as a result of the change in promotional posture and pricing on the shufflers.com site to align with a more full-price selling model. From an online and in-store integration perspective, we believe the many omnichannel offerings we had in place for the holiday shopping period helped boost sales both in our stores and online. Our digital and IT teams have been working extremely hard over the last several months to further enhance our omni capabilities, giving our customers the ability to buy online and receive their product in our stores. These initiatives were well received as approximately 20% of BootBarn.com orders were picked up in a store. These orders include those purchased online and picked up in-store, in addition to those shipped to the store from our e-commerce fulfillment center. Our omnichannel offerings helped drive incremental store traffic and provided convenience to our online customers, allowing for same-day in-store pickup, contactless curbside service, and even same-day gift-wrapped home delivery. We believe these capabilities were successful in expanding the number of customers that shop across channels. We were encouraged by the effectiveness of our direct-to-consumer supply chain, which was able to meet outsized customer demand while avoiding virtually all anticipated issues with package delivery service. In summary, the ongoing changes we have made and our focus on increasing e-commerce profitability have not only improved our bottom line, but have helped to narrow the margin differential between the stores and online channels. Now to our third strategic initiative, exclusive brands. During the third quarter, exclusive brand penetration grew to 23.3%, an increase of approximately 80 basis points compared to the prior year period. We are extremely pleased with the quality of our exclusive brands and our customers' receptivity to them. The continued acceptance of our brands helped position four of our exclusive brands in the top 10 selling brands in the store during the quarter. We are particularly pleased with the performance of both Idlewind and Hawks, as both brands have penetrated our top 10 brand list, despite being only a few years old. While the growth and penetration of exclusive brands decelerated during the third quarter as a result of constraints in our supply chain, We expect to finish the current fiscal year with exclusive brand penetration growth of approximately 200 basis points when compared to the prior year. Finally, our fourth initiative, expanding our store base. Year-to-date, we have opened seven stores and closed one store, bringing our total count to 265 stores across 36 states, and we are targeting a total of 15 new store openings by the end of our fiscal year. Even with the difficult backdrop of COVID-19, the new stores we have opened in new markets, particularly in the Northeast, are outperforming our expectations and are expected to pay back within our targeted three-year period. When we couple the performance we are seeing in our new markets with less than expected store cannibalization in our more mature markets, we are further convinced that we can deliver 10% growth in units and double our store count going forward. We are encouraged by the current store pipeline and feel that we are well-positioned as we approach fiscal 2022. I'd like to now provide an update on current business. Our fourth quarter is off to a very strong start, with same-store sales growth of 17% in fiscal January. This marks our sixth consecutive month of sequential improvement. The stores business continues to exhibit solid strength, with January comps up 20%. From an e-commerce perspective, we continue to focus on driving growth and profitability. Strength in BootBarn.com sales has continued with growth in line with our third quarter. Shefflers.com demand continues to be under pressure with declining year-over-year sales as we cycle a very promotional January in the prior year period. As a reminder, the Shefflers.com business has been repositioned as a much less promotional business, which, as expected, has put pressure on sales. That said, the rebranding of Schepler's has resulted in a much more profitable site, and we believe provides a solid foundation for the long-term health of that business. On a combined basis, we continue to see very strong growth in EBIT dollar contribution for our e-commerce channel in the first fiscal month of our fourth quarter. Notably, the sales growth in January has been broad-based, with all major merchandise categories growing on a comp basis. Additionally, we have seen each of our three geographical regions grow double digits in the month. That said, while we are certainly excited about the current sales trend and we believe the underlying business continues to be strong, we do attribute a portion of the acceleration in sales to external factors, including the receipt of stimulus payments at the start of the 2021 calendar year. I'd like to now turn the call over to Greg Hackman.