Boot Barn Holdings, Inc.

Good day, everyone, and welcome to the Boothman Holdings Fourth Quarter Fiscal Year 2022 Earnings Call. As a reminder, this call has been recorded. Now, I'd like to turn the conference over to your host, Mr. Mark Dadovich, Vice President, Financial Planning. Please go ahead, sir.

Thank you. Good afternoon, everyone. Thank you for joining us today to discuss Boot Barn's fourth quarter and fiscal 2022 earnings results. With me on today's call are Jim Conroy, President and Chief Executive Officer, Greg Hackman, Executive Vice President and Chief Operating 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 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 fourth quarter and 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, Group Run's President and Chief Executive Officer. Jim?

Thank you, Mark, and good afternoon. Thank you, everyone, for joining us on today's call. On this call, I'll review our fourth quarter and fiscal 2022 results, discuss the continued progress we have made across each of our strategic initiatives, and provide an update on current business. In addition, I will be sharing the results of a recent study we have completed that has led us to update our estimate of the size of our total addressable market and to establish a new long-term store account potential. Following my remarks, Jim Watkins will review our financial performance in more detail, and then we will open the call up for questions. On this call, we will return to our typical cadence of discussing our financial results on a one-year rather than two-year basis. Fiscal 22 is a record-setting year for Boot Barn, with results exceeding our expectations across the board. Consolidated same-store sales increased a staggering 54%, cycling a positive 3% comp in the prior year. This consolidated same-store sales growth was comprised of an increase in retail store same-store sales of 57% and e-commerce sales of 39%. Our sales growth throughout the year was consistently strong, driving our business far beyond the $1 billion mark for the first time to $1.5 billion. Remarkably, all 52 weeks of fiscal 22 grew in excess of 55% on a two-year basis, demonstrating the consistency of our performance. Merchandise margin increased 270 basis points compared to the prior year, fueled primarily by greater full price selling and growth in our exclusive brand penetration. The combination of top line strength, merchandise margin growth, and expense leverage led to a more than tripling of our earnings per share to $6.33 and an EBIT margin rate of 17.4%. I would like to take a brief moment to congratulate the entire Groupon team for achieving one of the best if not the best years I've seen in my entire retail career. Thank you all for your dedication, resilience, and hard work. Looking at our fourth quarter performance, consolidated same-store sales grew 33% on top of 27% same-store sales growth in the prior year period, which benefited from two rounds of stimulus payments. Our consolidated same-store sales growth was comprised of an increase in e-commerce sales of 50%, and retail store same-store sales growth of 31%. Consistent with our third quarter, the growth in same-store sales was driven primarily by an increase in transactions. Additionally, a substantial portion of the increase in transaction growth came from new customers, which underscores the success of our strategy to expand our addressable market, which I will address later in my remarks. In addition to strong top-line performance, EBIT margin expanded 360 basis points to 16.3% during the fourth quarter, driving earnings per diluted share of $1.47. On a tax-adjusted basis, excluding the benefit from stock compensation in the prior year period, earnings per share grew 96% compared to 75 cents in the prior year period. We believe the underlying strength in the business is a result of relentless execution across each of our four strategic initiatives. I will now spend some time highlighting the progress we continue to make across each initiative. Let's begin with driving same-store sales growth. We saw broad-based growth across the business in the fourth quarter with every major merchandise category showing double-digit growth over the prior year period. From a geographic perspective, every region also increased strong double digits. As we anticipated, the South modestly outperformed the other regions, primarily as a result of a full rodeo season this year in Texas going up against a COVID-impacted season last year. From a merchandise perspective, ladies apparel and boots, cowboy hats, ball caps, and belts were our strongest performing categories. Additionally, we saw healthy growth in men's Western apparel and boots, kids' apparel, and accessories. Work boots and work apparel were also double-digit positive, with both flame-resistant and non-flame-resistant apparel showing nice growth over the prior year period. The merchants, in combination with our planning, supply chain, and logistics teams, overcame industry-wide supply chain challenges and did a fantastic job of broadening our merchandise assortment as well as securing enough inventory to fuel the outside demand. We believe that the team's aggressive buying decisions helped drive a strong impact position, gave us a competitive advantage, and drove solid growth across the entire business. From a marketing perspective, we continue to balance our investment in both traditional marketing programs and digital advertising. Our marketing strategy has enabled us to elevate the aesthetic of the brand and extend our customer base beyond our traditional Western customer. We are pleased with our ability to continue to build our customer base and we are encouraged to see that their retention rates and spending patterns are very similar to our legacy customers. We believe that our efforts to transform and extend the Boot Barn brand has greatly expanded the market in which we operate. We are further pleased to report that our push to attract a new customer segment has not negatively impacted our legacy customers who continue to shop even more frequently than they have in the past. From an operational perspective, the entire field team was able to handle the elevated sales volume while providing excellent service to our customers. The stores organization managed a heavy flow of merchandise and led a much larger base of employees while also supporting the opening of 28 new stores across the country. As we emerged from the holiday season, we believed that the strength in the sales trend would continue. Accordingly, we worked to convert a substantial portion of our seasonal employees to full-time associates, which positioned us well for the balance of the fourth quarter. This enabled us to circumvent many of the ongoing staffing challenges other retailers are facing and provided additional competitive advantage. Moving to our second initiative, strengthening our omnichannel leadership. Our e-commerce channel had a fantastic fourth quarter, with sales growing 50% and EBIT increasing 70% over the prior year period. Our ongoing focus on driving exclusive brand penetration, coupled with a more efficient use of our digital marketing spend, continues to result in improved profitability of our e-commerce business, despite industry-wide freight cost headwinds. From an omnichannel perspective, we continue to build a more seamless experience for our in-store customer. Over the last several years, we have upgraded the digital experience in the store with the addition of multiple omnichannel services that have been very well received. For example, the implementation of our endless aisle or WIP capability has enabled us to enhance the in-store shopping experience and to convert potentially lost store sales by making all of our inventory chain-wide. available to every customer in every store. During the fourth quarter, our stores team and IT team partnered well to roll out multifunctional handheld devices across the chain that enable omnichannel selling services while also streamlining the operational aspects of the store. On our last earnings call, we highlighted our ability to sell in-store inventory to our online customers. Now e-commerce orders can be fulfilled by either our distribution center or any one of our stores. This has had a positive impact on the business from a few different perspectives. First, as we carry more exclusive brand product in stores versus online, we've been able to drive incremental exclusive brand penetration online by broadening the inventory selection available to that customer. Second, we are able to mitigate markdown risk at the individual store level by by enabling all in-store inventory to be viewed by our online customers as well. Lastly, by making all our store inventory accessible, we believe we can service online customers more quickly and more efficiently as the product ordered often resides in a store that is geographically closer to the consumer. Amazingly, when factoring in all of our omnichannel capabilities, Approximately two-thirds of total e-commerce orders involve a store associate, whether that be via in-store fulfillment, ship-to-store, WIP, BOPIS, or same-day delivery. We believe our focus on an integrated omni-channel experience that leverages a nearly national footprint of stores has set us apart and gives us another competitive advantage. Now to our third strategic initiative, exclusive brands. During the fourth quarter, we grew exclusive brand penetration to 29.6%, an approximately 540 basis point increase over the prior year period. We continue to be very pleased with the growth and reception of our exclusive brands. Notably, three of our exclusive brands were among the top five selling brands in the fourth quarter. For the full fiscal year, we grew exclusive brand penetration to 28.3%, an approximately 470 basis point increase over fiscal 21. Our current portfolio now consists of 10 brands, including the addition of our four new brands in the fourth quarter. We are quite pleased with the customer receptivity of our exclusive brands and the ability to provide our customers with unique merchandise. Further, as many of our branded vendor partners have faced significant supply chain challenges, we were able to rely on our own brands to ensure a strong in-stock position and outperform our competition. Finally, our fourth initiative, expanding our store base. During the fourth quarter, we opened 11 stores, bringing our total store count to 300 stores at the end of the fiscal year. We also opened our first store in Delaware during the fourth quarter, bringing our national footprint to a 38th state. We continue to be very pleased with the performance of our new stores. New stores opened in both existing and new markets are consistently outperforming their pro forma sales and their expected payback period. Not only are we seeing these stores far outpace their original sales pro forma, but we are also seeing a synergistic growth in our e-commerce business in those markets as well. We are excited about our new store openings in fiscal 23 with expansion into the states of New York, New Jersey, West Virginia, and Maryland. Remarkably, every store in the chain is profitable from a four-wall contribution perspective, which gives us further confidence to continue our aggressive growth. At this point, I would like to share some exciting new information related to the market opportunity for the Boot Barn brand and store concept across the country. As we have been communicating over the past few years, we have been looking at expanding our customer reach to a more casual customer in addition to the core Western customer. We have now had time to substantiate our intuitive feeling with a robust data-driven third-party analysis. This work, which is summarized on pages 9 and 10 of our supplemental financial presentation, has further validated our recent strategy of extending our customer reach as a mechanism to drive outsized sales growth and has confirmed that the market is substantially larger than we had estimated when we last did this work almost 10 years ago. Not only has the original Western and work market expanded by 25% in these 10 years, but we have now added $15 billion of new market opportunity as a result of incorporating this more casual outdoor segment that we have defined as a country lifestyle customer. As a result of this external evaluation, we now believe that our total addressable market has doubled from $20 billion to $40 billion. When you couple this analysis With the success of our new stores, both in building out new markets and adding to existing markets, we now feel confident that our U.S. store count can successfully reach 900 stores over time. This is quite exciting news for us and we look forward to sharing more details with you in the future. Turning to current business. We are now approximately halfway through our first fiscal quarter and are very pleased with the continued growth of the business. While there was some concern that it would be difficult to wrap the strength of last year's business, our consolidated same-store sales growth through the first six weeks of fiscal 23 is approximately 12%, with both the stores and e-commerce channels posting strong comps. Once again, sales are being driven by strength in transactions with minimal help from inflation and no change in our promotional posture. We are now six weeks into the quarter and feel great about the strength of the current trend, further bolstered by the sequential improvement we have seen in May relative to an already very strong April business. I'd like to now turn the call over to Jim Watkins. Thank you, Jim.