Boot Barn Holdings, Inc.

Good day, everyone, and welcome to the Putban Holdings Second Quarter 2024 Earnings Call. As a reminder, this call is being recorded. Now, I would like to turn the conference over to your host, Mr. Mark Dedovesh, Senior Vice President of Investor Relations and Financial Planning. Please go ahead.

Thank you. Good afternoon, everyone. Thank you for joining us today to discuss Buparn's second quarter fiscal 2024 earnings results. With me on today's call are Jim Conroy, President and Chief Executive 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 Buparn's website at buparn.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 Blue 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 Blue 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 2024 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 will review our second quarter fiscal 24 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 for questions. We are pleased with our second quarter results, which reflect the continued expansion of the brand's national footprint. During the quarter, total sales increased 6.5%, driven by the 50 new stores added over the last 12 months, including the 10 stores opened during the second quarter. New store sales were partially offset by a mid-single-digit decline of 4.8% in consolidated same-store sales, which was within our guidance range. We feel good about this performance, considering that the business was cycling a plus-2% comp last year, on top of a plus 62% in the prior year period. Additionally, we achieved 50 basis points of merchandise margin expansion during the quarter, driven primarily by more than 600 basis points of growth in exclusive brand penetration. Strength in sales and margin, combined with solid expense control, drove earnings per diluted share of $0.90 during the quarter, which was at the high end of our earnings rate. Our consistent success is a result of the team's execution of our four strategic initiatives and underscores the future growth potential of the brand. I will now spend some time discussing each of our four strategic initiatives. Let's begin with expanding our store base. A key growth ten for Boot Barn is to build out our store portfolio across the country to solidify our position as the market leader. With the opening of 10 new units in the second quarter, we have now opened 50 new stores in the last 12 months and 93 stores in the last two years. We continue to be quite pleased with the success of our store rollout as the group of stores opened over the past two years is projected to pay back within 18 months, with each individual store expected to pay back in less than three years. We believe we have the potential for 900 or more stores in the United States, which will provide a significant lever for future growth in sales and earnings. In addition to opening new stores, we are continuing with our store remodel and relocation program. We evaluate every store in our portfolio on a continual basis, looking for opportunities to either secure better real estate or to remodel the store in place. Given the progress over the past few years, we are encouraged that only about 60 stores remain to be refreshed or moved. This ongoing focus not only provides a financial payback in many cases, but ensures that our stores are keeping pace with the recent transformation of the Boot Barn brand. Moving to our second initiative, driving same-store sales growth. Second quarter consolidated same-store sales declined 4.8%, with retail store same-store sales declining 3.8% and e-commerce same-store sales declining 11.7%. Average store sales remain at elevated levels with a three-year stack in retail store same-store sales growth of more than 66%. Our comp sales were in line with expectations through August, but September experienced softer-than-expected results. The softening trend in same-store sales was broad-based across both geographies and merchandise categories, leading us to believe that the change in trajectory was driven by macro pressures and a decline in consumer spending. The trend in our more functional categories, such as work boots and men's western merchandise, has experienced less of a decline than our more discretionary categories, like women's western merchandise. It is also worth noting that while we have Seeing a greater decline in our more discretionary businesses, we are cycling a three-year comp growth in ladies' western boots and apparel of more than 100%. Geographically, our Texas business was weaker than chain average, with our north and west regions outperforming the chain. While we believe that the macro pressures are transitory, we are managing our inventory levels, markdown plans, and expense structure closely to maximize earnings despite pressure in same-store sales growth. In fact, the team has done a very good job of positioning our assortment and inventory levels as we enter the holiday season. At the end of the quarter, our inventory was down 9% year-over-year in total and down 14% on a comp-store basis. It is partly due to this rigor and discipline that we're able to expand merchandise margin by 50 basis points in the second quarter, despite softening sales and moving through additional markdown inventory. From a marketing perspective, the team is building the brand nationally and fueling the ongoing growth in customer count. Over the past few years, we have created several new partnerships with NASCAR teams, additional rodeos, country music artists, and professional athletes. We have two new collaborations that we are particularly excited about. First, we have entered into a partnership with the Dallas Cowboys as the official sponsor for this NFL season. As America's team, we believe the Cowboys organization is a strong partner for us to connect with consumers across the country, as well as strengthen our position locally in the important Dallas market. Second, Boot Barn will be the 2024 headline tour sponsor for Morgan Wallen, a country music megastar that has tremendous appeal to a very broad consumer market. Morgan has an undeniable connection with his fans across the world as evidenced by his recent tour, spanning 57 shows across five countries and three continents. His latest album, One Thing at a Time, topped the Billboard 200 chart for 12 consecutive weeks upon release, which is the most for a country artist in over 30 years, and his prior record, Dangerous, the double album, is the longest-running Billboard Top 10 album in history for any solo artist. As part of our sponsorship of his One Night at a Time world tour, we will have in-arena exposure, tour bus marketing, product placement opportunities, and the chance to use him in our merch. We are excited for both of these new partnerships as we expect they will continue to expand the Boot Barn brand nationally and enable us to reach new customer segments. Moving to our third initiative, strengthening our on-the-channel leadership. In the second quarter, e-commerce sales, which represent approximately 10% of total revenue, declined 11.7%. Our main site, bootbarn.com, posted a modest low single-digit sales decline, faring much better than the balance of our e-commerce business. It is encouraging that our namesake Boot Barn site is maintaining its volume, and while we would like to grow our other sites They serve a different strategic purpose and cater to a more price-sensitive customer. The digital team has contributed greatly to the broader business, adding numerous omnichannel capabilities over the past few years. One significant improvement led by the omnichannel team is the ability to fulfill consumer demand from any store or any distribution facility. This enables us to fulfill orders more quickly and efficiently than shipping everything from a single e-commerce fulfillment center. It also allows us to move through in-store markdowns quicker and with less erosion in price. Now to our fourth strategic initiative, exclusive brands. During the second quarter, our exclusive brands continued to demonstrate strong double-digit sales growth with penetration increasing by over 600 basis points to 38.6%. This is our fourth consecutive quarter of greater than 500 basis points of year-over-year growth, significantly outstripping our historical stated goal of 250 to 300 basis points of growth. The product design and development team continues to find opportunities to build market share, and our exclusive brand business alone is on track to generate more than $600 million in annual revenue. Turning to current business, we have seen the softness in same-store sales in September continue into October. On a consolidated basis, October same-store sales declined 9.2%, with our retail store same-store sales declining 8.2%, and our e-commerce business down 16.7%. Fortunately, we have other growth drivers that continue to perform. We expect to build approximately 26 stores in the final two quarters of the year, which will drive top-line sales and build our market share. We also expect to see ongoing expansion in our merchandise margin rate for the balance of the year, despite a decline in same-store sales, which is a testament to nimble execution by the entire merchandising team. In summary, we believe we have positioned our inventory levels and holiday staffing plans to maximize sales and profitability for the remainder of the quarter and the year.