Boot Barn Holdings, Inc.

Good day, everyone, and welcome to the Boot Barn Holdings Third Quarter 2023 Earnings Call. As a reminder, this call is being recorded. Now, I'd like to turn the conference over to your host, Mr. Mark Dadovesh, Vice President of Financial Planning. Please go ahead, sir.

Thank you. Good afternoon, everyone. Thank you for joining us today to discuss Boot Barn's Third Quarter Fiscal 2023 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 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 third quarter fiscal 2023 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, Groupon's President and Chief Executive Officer.

Jim? Thank you, Mark, and good afternoon. Thank you, everyone, for joining us. On this call, I'll review our third quarter fiscal 23 results, discuss the progress we have made across each of our four strategic initiatives, and provide an update on current business. Following my remarks, Jim Watkins will review our financial performance in more detail, and then we will open the call up for questions. I'm extremely proud of the entire Boot Barn team for their tremendous execution in the third quarter, as we delivered total sales at the high end of our guidance. Total net sales grew 5.9% on top of 60.7% growth in the prior year period. driven primarily by strong sales from new stores opened over the past 12 months. On a three-year basis, total sales have grown 81% compared to the third quarter of fiscal 2020, just prior to the start of the pandemic. We are very encouraged that this three-year growth has been driven primarily by an increase in the number of transactions, as we have added a significant number of new customers to the brand, while legacy shoppers seem to be purchasing more frequently. From a margin perspective, during the third quarter, merchandise margin declined 190 basis points, driven by a 180 basis point headwind from higher freight expense. We maintained our full price selling posture in what we believe was a highly promotional holiday season across retail. As a result, we were able to achieve a merchandise margin rate nearly in line with last year's record-setting performance after normalizing for the transitory freight headwinds. Once again, this demonstrates the strength of the Boot Barn brand and our ability to drive the business forward without resorting to unnecessary sales or promotions. I will now spend some time highlighting the recent progress we have made across each of our four strategic initiatives. Let's begin with expanding our store base. We continue to be pleased by our ability to grow new units each year. While historically we targeted 10% new unit growth, with each store generating approximately $1.7 million annually, We have recently been over-delivering on bulk metrics. We expect to open approximately 43 stores in the current fiscal year, or more than 14% growth. Even more encouraging is our new store model is now $3.5 million, or more than double our original target. At this level of sales, our new stores are paying back in just over one year with nearly 100% cash-on-cash returns. The pipeline for new store openings remains strong as we continue to broaden our retail footprint across the United States. During the third quarter, we opened 12 new stores, including our first store opening in the state of Connecticut, further expanding our Northeast presence. The success of our new stores in new and existing markets, coupled with less sales cannibalization than we originally anticipated, gives us further confidence in our ability to expand to more than 900 stores across the country, or nearly triple our current store count. Moving to our second initiative, driving same-store sales growth. We are pleased with our same-store sales performance in the third quarter, with consolidated same-store sales down 3.6% while cycling 54.2% same-store sales growth in the prior year period. We are particularly encouraged by the performance of our retail store sales, which declined a modest 0.8% while cycling a 55.7% growth in the year-ago period. During the third quarter, our strongest growth categories were work apparel and men's western apparel. While sales of men's and ladies' western boots, ladies' apparel, and hats declined, it is important to note that each of these businesses was up against incredibly strong double-digit or triple-digit growth in the prior year period. From a geographic standpoint, we saw growth in our east and north regions, a slight decline in our south region, and a mid-single-digit decline in our west region, which is perennially our strongest region. Given the outsized growth we saw in all regions of more than 50% in our prior year period, we are again pleased with the performance across the country. From a marketing perspective, the team continues to expand our customer reach by modernizing the brand and carefully tailoring our communication to each customer segment. We use a combination of media formats to target our legacy Western and work customers in addition to our more recently added country lifestyle and fashion customers. We believe the content of our marketing not only showcases the Boot Barn brand within the industry, but has also garnered the attention of a much broader customer base from mainstream retail. From an operational perspective, I am proud of our field organization across the country for another very successful holiday season. The team has not only risen to the challenge of the higher average store sales volume, but has continued to expand the brand's footprint through new stores, including 12 additional store openings in the third quarter. The store team's ability to deliver world-class customer service, manage the inventory levels needed to sustain the elevated store sales, and allocate store labor hours to the many omnichannel offerings we now have in place is a testament to the dedication of our team and the hardworking nature of all of our store partners. Moving to our third initiative, strengthening our omnichannel leadership. We continue to focus on our omnichannel capabilities by integrating our stores and digital channels. Approximately 60% of online orders involve a store associate, which underscores the importance of our brick-and-mortar presence. We've always believed that the most successful and profitable way to service an e-commerce customer is by seamlessly integrating the store and digital channel. As an example, we added in-store fulfillment to our omnichannel offering. Now when a customer places an order online, they have access not only to inventory that is in our distribution center, but they also can select merchandise from more than 300 stores across the country. This has enabled us to enhance the in-store experience while also providing digital customers with a much broader selection of merchandise. In-store fulfillment has resulted in shorter delivery times and a pronounced expansion of exclusive brand sales online, which further contributes to the profitability of the business. In the third quarter, our e-commerce same-store sales declined 15.2%, which was in line with our expectations. As we discussed on our prior earnings call, we believe the recent decline in our e-commerce channel is a result of competitors having a stronger in-stock position compared to last year. We believe this trend will continue for the next two quarters until we cycle the software business that emerged in July last year. It is important to note that this headwind impacts our digital business, but not the strength of our storage business for a couple of reasons. First, our e-commerce customer has historically been a less loyal customer. Secondly, we're very prudent with our online spending for new customer acquisitions. As a result, our pay-per-click spending over the past several years has been pared back to a level that focuses more on bottom-line profitability than top-line sales growth, which could erode our earnings. Our focus on the long-term health of our e-commerce business has enabled us to grow digital sales by more than 45% over the past three years with an even greater growth in earnings. Now to our fourth strategic initiative, exclusive brands. During the third quarter, our exclusive brand penetration grew to 34.1%, more than 570 basis points of growth over the prior year period. On a trailing 12-month basis, our exclusive brand volume has exceeded $500 million and now makes up 32.2% of sales. Our exclusive brand team continues to design excellent merchandise from both a price and quality perspective. Consistent with prior quarters, three of the top five selling brands in the third quarter were Cody James, Cheyenne, and Idlewind. We expect to drive continued growth in this area of the business with the 10 brands that currently comprise the portfolio. These brands not only provide us with competitive differentiation both in stores and online, but they are also accretive to the business by approximately 1,000 basis points of margin. The success of exclusive brands has once again exceeded our original expectations. At the beginning of the year, we had anticipated expanding our exclusive brands by 300 basis points. We now are focusing We now are forecasting exclusive brands to grow to 33.4% of sales, or approximately 500 basis points of penetration growth versus last year. I do want to express my appreciation to the entire exclusive brands team for continuing to provide product innovation and for the outsized growth in our exclusive brands business. We believe that the combination of our exclusive brands, along with the strength of our third-party vendor partners, provides us for provides for an exciting and diverse merchandise assortment both in-store and online. Turning to current business, through the first four weeks of our fourth fiscal quarter, our preliminary consolidated same-store sales have declined 1.5% compared to the prior year period, driven by a 16% decrease in e-commerce sales, partially offset by growth in retail same-store sales of 1.2%. Please note that our retail store same-store sales growth for this short four-week period is artificially suppressed as it incorporates one day of zero sales given that our quarter began on Christmas Day this year. Importantly, when looking at our January business on an annualized basis, we continued to maintain an average unit sales volume of approximately $4.2 million per store. This elevated store sales volume began in April 2021 and has now sustained itself for 22 consecutive months. For reference, our average store sales volume historically had been $2.7 million annually, and is now more than 55% higher than that. In an effort to better understand the reasons for this AUV growth and its sustainability, we conducted a survey of approximately 3,000 of our customers, both legacy and new to Boot Barn. Among the many questions that the survey asked, we were particularly curious to learn where the new customers came from, what made them shop Boot Barn, and whether they would continue to shop with us going forward. On the first question, the survey feedback indicated that we gained new customers throughout the pandemic, not only from within the Western industry, but we captured an even greater number of shoppers from mainstream retail channels. It was also quite encouraging to learn that these new customers were attracted to Boot Barn stores by a combination of our upgraded marketing, and our expanded product assortment. Finally, when we asked customers how likely they are to shop at Bupa on this calendar year, 96% of them said they are very likely or extremely likely to shop with us again. To summarize, we believe that we have reached a new level of average store sales when we consider both the qualitative feedback from the customer research and the ongoing consistency of the monthly sales volumes. I'd like to now turn the call over to Jim Watkins.