Boot Barn Holdings, Inc.

Good day, ladies and gentlemen, and welcome to the Boot Barn Holdings, Inc. Second Quarter 2022 earnings call. As a reminder, this call is being recorded. I would now like to turn the conference over to your host, Mr. Jim Watkins, Senior Vice President of Finance and Investor Relations. Mr. Watkins, please go ahead. Thank you.

Good afternoon, everyone. Thank you for joining us today to discuss Boot Barn's Second Quarter Fiscal 2022 earnings results. With me on today's call are Jim Conroy, President and Chief Executive Officer of 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 fiscal 2022 earnings release, as well as our filings with the SEC referenced in that disclaimer. We do not undertake any obligation to update or alter any forward-looking statements, whether as a result of new information, future events, or otherwise. I will now turn the call over to Jim Conroy, Boot Barn's President and Chief Executive Officer. Jim?

Thank you, Jim, and good afternoon. Thank you, everyone, for joining us. On today's call, I'll review our second quarter fiscal 22 results, highlight each of our key strategic initiatives, and 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. Consistent with our last earnings call, and given the impact COVID had on our performance in fiscal 21, we believe that a comparison of our second quarter results to the same period two years ago provides the most helpful view into our performance. Our business remained extremely strong during the second quarter. We saw broad-based growth online and in stores. Total sales growth on a two-year basis was 67%, with retail stores up 69% and e-commerce up 57%. I think it is important to begin with some additional color into the underlying strength of the business. First, a significant portion of the sales increase can be attributed to the addition of new customers added to the Boot Barn brand, with only a small portion of the increase attributable to increased retail prices. Second, we've achieved this growth while dealing with a challenging supply chain where some of our vendors are not shipping us in full. Third, the growth is extremely broad-based, with nearly every department in the company experiencing strong double-digit growth. And finally, the consistency of the business has been remarkable, with 32 consecutive weeks of more than 55% growth in sales on a two-year basis, with every one of the 13 weeks in Q2 60% or better. I must express my appreciation to the entire organization across each functional area and every store team that has contributed to this tremendous sales growth. The entire team continues to demonstrate an ability to execute successfully during this exponential surge in the business. In combination with strong top line performance, merchandise margin during the quarter was very healthy, increasing 320 basis points over the same period two years ago, driven primarily by better full price selling and growth in exclusive brand penetration. This increase in margin is even more notable as it includes some modest margin deterioration from freight expense. The strength in sales, both in stores and online, helped drive earnings of $1.25 per diluted share compared to 26 cents in the same period two years ago. When adjusting for the tax benefit in both years, we grew our earnings per diluted share more than 400% to $1.22 compared to 24 cents in the same period two years ago. While this year is somewhat of a unique period of growth, It is worth noting that we continue to outperform our 20% annual earnings algorithm when you look at the past several years of EPS. Digging deeper into the drivers of our performance, I would now like to provide an update on each of our four initiatives, beginning with driving same-store sales growth. During the second quarter, we saw consistently strong sales growth across our stores business, continuing the momentum that began building in the fourth quarter last year and accelerated during the first quarter. Total sales in our retail stores during the second quarter grew 69% when compared to the same period two years ago. Geographically, we again saw broad-based, double-digit growth across every district and region. All regions were extremely strong, with the two-year same-store sales growth in the West outperforming the rest of the chain. Texas, while still growing by double digits, was below the chain average. From a merchandise perspective, on a two-year basis, we saw broad-based, double-digit growth across almost all major merchandise categories. We saw particular strength in the growth of ladies' western boots and apparel. To expand on this point slightly, we do believe we are experiencing, and perhaps we have helped create, a western fashion trend that is adding to the growth of the business. That said, if you exclude the ladies' western business from total company sales, the balance of the business, which has very little fashion influence, would still have grown by approximately 60%. The men's Western business was also very strong with outsized growth in boots, apparel, and hats. Work boots and non-FR work apparel grew strong double digits, albeit less than the chain average. Once again, flame-resistant work apparel remained the only category that declined when compared to the same period two years ago. While FR is a small percentage of our business, it is indicative that sales in the oil markets have not yet returned to the levels they were at two years ago. From a marketing perspective, I am very pleased with the work the team continues to produce. They have successfully elevated the aesthetic of Boot Barn and greatly expanded the brand's reach. Their ability to develop and communicate world-class branding to each customer segment ties back to an annual overarching campaign has proven to attract new shoppers both in-store and online. There appears to be a growing presence of Western-inspired fashion in more mainstream channels. I would attribute a portion of that groundswell to the work that the Boot Barn marketing team has been doing to redefine our brand over the past few years and communicate that message to a broader audience. From an operational perspective, our store associates and field leadership team have been working extremely hard to meet the needs of our customers. The team continues to rise to meet every challenge, including the surge in sales, a significant flow of inventory, expanded omnichannel requirements, a difficult hiring environment, and, of course, the ongoing issues associated with the pandemic. My hat is off to the sales associates and store leadership teams that are on the front lines, taking care of customers, and representing the Boot Barn brand so professionally every day. Moving to our second initiative, strengthening our omnichannel leadership. E-commerce sales in the second quarter grew 57% compared with the same period two years ago. While we are extremely pleased with the top-line growth in sales, we are even more encouraged by the outsized growth in earnings we have seen in the e-commerce channel. We believe the many omnichannel initiatives we have put in place over the last few years have contributed significantly to the profitability improvement in our online business. We have improved merchandise margin by becoming less promotional, particularly on Sheplers, and by continuing to increase the penetration of exclusive brands online. We've also managed to limit outbound freight expense in a very difficult shipping environment by leveraging our store network across the country. And finally, the team continues to become more efficient with our marketing and pay-per-click spend. The combination of these changes has improved the profit contribution of this channel meaningfully over the last few years. While COVID served as a catalyst for us to further develop our omnichannel ability, we recently have been focusing more specifically on our capability to fulfill online orders from our store inventory. This new offering has resulted in a multitude of benefits, including faster and less expensive order fulfillment, an increase of exclusive brand penetration online, and the ability to sell through the relatively small amount of clearance merchandise that we carry at a higher markup. This was a project that required careful coordination across merchandising, store operations, and e-commerce, with tremendous facilitation by our technology group, and once again demonstrates the team's ability to execute successfully and to outpace our competition. Now to our third strategic initiative, exclusive brands. Our exclusive brand performance continued its momentum from the first quarter, with growth of 750 basis points compared to the same period two years ago, amounting to 28.8% of net sales in the second quarter. Our portfolio of exclusive brands has shown consistent performance over time, and we are very pleased with the ongoing customer receptivity we are seeing. We have seen significant growth in every one of our major exclusive brands, with three of them now being included in our top five brands. Not only has the product development team been able to continue to produce highly desirable merchandise, but the team has done a great job in both fulfilling the increased product need and controlling inflationary pressures. The team's execution on these two points has enabled us to continue to grow our penetration of exclusive brands with only modest increases in retail prices to cover additional freight costs. Finally, our fourth initiative, expanding our store base. During the second quarter, we opened three new stores and closed one, bringing our total store count to 278 stores across 36 states. We continue to believe we can expand our footprint across the U.S. and have been extremely happy with recent new store performance. These stores, both in new and existing markets, have been performing above our expectation and are on track to pay back well ahead of our targeted three-year period. Our pipeline for new store openings is very strong, and we expect to open a total of 27 stores in the current fiscal year, including 11 stores in the third quarter and 10 in the fourth quarter. We are particularly excited to continue to expand the geographic reach of the brand with approximately half of the upcoming new store openings in new markets. Further, looking at the strength of the future pipeline, we believe we are well positioned to grow new units by at least 10% annually going forward. Now I would like to touch on our readiness for the upcoming holiday period. While we are facing a multitude of challenges, I feel that the company is well-positioned for the upcoming seasonal build and sales. From a supply chain perspective, we are encouraged that our merchants have been able to increase our inventories 34% compared to last year, or 9% on a comparable store basis, and I would like to thank them for their relentless effort in securing merchandise. Their accomplishment is particularly remarkable given the more than 60% sales growth during the past seven months. For context, when business began to strengthen last summer, we commenced placing purchase orders to ensure that we would be in stock with the necessary product to meet customer demand. This early and aggressive action has allowed us to stay in stock during this period of record sales growth. This, coupled with some terrific operational execution in our distribution center, has us well positioned from an inventory standpoint as we head into the holiday shopping season. The other area of intense focus has been securing seasonal hiring for our stores and distribution centers. While the labor market has been extremely tight, I am pleased to share that we have made considerable early progress in building our holiday staffing. At this point, we have fulfilled approximately 80% of our total store staffing needs for the holidays, which is an improvement versus our preparation last year at this time in the season. Turning to current business, our third quarter is off to a strong start with total consolidated sales growth on a two-year basis through the first four weeks of our third quarter, increasing 67% with a continuation of strong expansion in merchandise margin. Once again, the sales growth has been extremely consistent and broad-based across both merchandise categories and geographies. Finally, As we have announced in our press release, we have promoted Jim Watkins to Chief Financial Officer effective Monday, November 1st. We brought Jim to Boot Barn to assist with our IPO more than seven years ago, and his role has since expanded to include investor relations and external reporting. He will now add accounting and financial planning to his responsibilities. This new structure has been contemplated for some time as part of our organizational succession planning. Jim will continue to work closely with Greg to ensure an orderly transition of the finance function. I look forward to working even more closely with Jim as he steps into this new leadership role. Greg will continue as Executive Vice President and Chief Operating Officer. Greg will continue to be my partner in running the overall company, and this change will enable him to spend more time on the sales support functions to help ensure we can continue to scale the business to a multi-billion dollar national retailer. I would like to recognize both Jim and Greg for their ongoing partnership and look forward to continuing to work with them as we grow the Groupon brand and geographic footprint. I'd like to now turn the call over to Greg.