BOOT - NYSE

Good day, everyone, and welcome to the Boot Barn Holdings, Inc., Second Quarter 2026 Earnings. As a reminder, this call is being recorded. Now I'd like to turn the conference over to your host, Mr. Mark Dedovesh, Senior Vice President of Investor Relations and Finance. Please go ahead, sir.

Thank you. Good afternoon, everyone. Thank you for joining us today to discuss Boot Barn's Second Quarter Fiscal 2026 Earnings Results. With me on today's call are John Hazen, 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 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 during this call 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 2026 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 John Hazen, Boot Barn's Chief Executive Officer. John?

Thank you, Mark, and good afternoon. Thank you, everyone, for joining us. On this call, I will review our second quarter fiscal '26 results, discuss the progress we have made across each of our 4 strategic initiatives and provide an update on current business. In addition, I will be sharing the outcome of a recent study we completed, resulting in an increase to our estimated total addressable market and our long-term store count potential. Following my remarks, Jim Watkins will review our financial performance in more detail, and then we will open up the call for questions. We are very pleased with our second quarter results, which reflect broad-based strength across all major merchandise categories in stores and online and across all geographies. During the quarter, revenue increased 19% compared to the prior year to $505 million, driven by sales from the 64 new stores opened over the last 12 months and consolidated same-store sales growth of 8.4%. In addition to strong sales growth, merchandise margin rate increased 80 basis points compared to the prior year period. The strength in sales and margin, combined with solid expense control, resulted in earnings per diluted share of $1.37 during the quarter, which equates to 44% growth compared to the prior year period of $0.95. The team's ability to deliver strong top and bottom line results reflects the execution of our 4 strategic initiatives, which I'll now spend some time discussing. Let's begin with new store growth. Our new store growth engine continues to exceed expectations while expanding the Boot Barn brand across the country. Halfway through fiscal '26, we have already opened 30 new stores, and we expect to open 40 new stores over the balance of the fiscal year, ending the year with 70 new stores opened. We estimate new stores on average will generate approximately $3.2 million in annual sales and pay back their initial investment in less than 2 years. Consistent with our comments last quarter, the new stores opened over the last 6 years are providing an approximately 100 basis point tailwind to consolidated annual comps. Now turning to our total addressable market and long-term store count potential. The strong broad-based results we have seen across new store openings, merchandise categories and geographies prompted us to revisit the total market opportunity for Boot Barn. Similar to the study we conducted 3 years ago, we have combined our internal analysis with a third-party study to understand the future potential of the Boot Barn brand. This work, which is summarized on Pages 4 and 5 of our supplemental financial presentation, suggests that the market is substantially larger than our prior estimate, and we now believe that our total addressable market has expanded from $40 billion to $58 billion. Turning to our long-term store count potential. New stores opened over the last few years have consistently generated strong sales and earnings across all geographies, which has emboldened our approach to be a stores-first organization. We recently reevaluated our store potential across individual U.S. markets and have combined that analysis with a third-party study to support our estimates. We now believe that the U.S. store count can reach 1,200 stores, and we expect to open 12% to 15% new units annually. As we look towards fiscal '27, the pipeline remains very strong, including 20 projected openings in the first quarter, which will begin in April. I would like to thank the entire team for their tireless efforts in identifying quality real estate, building and merchandising impressive stores, hiring and training both average unit retail and units per transaction of less than 1%. From a merchandising perspective, we saw broad-based growth across all major merchandise categories in the second quarter, led by the ladies business, which comped positive mid-teens. This was followed by the men's business, which comped positive high single digits. Our denim business, which is included in the categories just mentioned, comped positive high teens. Our work boots business comped low single-digit positive and our work apparel business comped mid single-digit positive. We were extremely pleased to see the broad-based growth across categories continue from the first quarter into the second quarter. From a marketing perspective, Boot Barn proudly sponsors hundreds of rodeo and events every single year. We support a broad array of events across the country from local rodeos to national sponsorships such as Professional Bull Riders and National Finals Rodeo. We also have long-standing partnerships with country music artists, Miranda Lambert and Brad Paisley, and we recently announced a new sponsorship agreement as the official boot retailer for the Stagecoach Music Festival. As the largest Western retailer in the nation, we are thrilled to form a partnership between our brand and the largest country music festival. Moving to our third initiative, omnichannel. In the second quarter, e-commerce comp sales grew 14.4% and bootbarn.com, which is approximately 75% of our online sales, comp positive high teens. We are very pleased with the growth in our online channel and attribute a portion of our strong results online to several recent initiatives. I would like to first touch on the rollout of our new exclusive brand websites, which is one of the early visions I had for the company upon assuming my new role as CEO. The primary goal of these sites was intended to provide a vehicle for brand storytelling and to market our exclusive brands as stand-alone brands, similar to that of our third-party brands. As part of this initiative, earlier this fiscal year, we launched a new website and marketing campaign for our work brand, Hawx, and we duplicated that approach late in our second quarter for our largest exclusive brand, Cody James. We are pleased with the initial returns on both rollouts, particularly the large number of net new customers to Boot Barn that are visiting each site. In addition to building the brand awareness and authenticity we had hoped for, we are also very pleased with the early sales on these sites. Another initiative we believe is driving strong results online is the implementation and integration of artificial intelligence. Our omnichannel team has improved the search functionality on our website, utilizing AI, which now offers the customer a wider range of search results and more product recommendations when they browse the site. In addition to the new search experience, Boot Barn is leveraging AI to enhance product copy, support store associates through our Cassidy assistant and develop multimedia training modules. While still in the early stages, we continue to look for opportunities to integrate AI to improve the customer experience and drive efficiencies. Lastly, our strategy to open new stores not only expands our national footprint, but also benefits online sales. When a Boot Barn store opens in a market, we see a noticeable increase in online sales volume in that store's vicinity. A brick-and-mortar location legitimizes the Boot Barn brand for a new customer and many omnichannel offerings provide a seamless shopping experience for our online customers to also find our store, benefiting both sales in-store and online. I am very pleased with the achievements of our omnichannel team and their collaboration with the stores organization to expand the overall business and provide a great customer experience. Now to our fourth strategic initiative, merchandise margin expansion and exclusive brands. During the second quarter, merchandise margin increased 80 basis points compared to the prior year period and exclusive brand penetration increased 290 basis points to 41% of sales. I'm thrilled with our team's continued ability to develop high-quality product to complement the great assortment offered by our branded vendor partners. I'd like to now provide an update on our pricing strategy. As a reminder, third-party price increases of approximately mid-single digits went into effect during the second quarter. As we discussed on our last call, we made a decision to limit exclusive brand price increases in order to evaluate the customers' reaction. Over the last several months, we have worked closely with our exclusive brand factories in order to mitigate the impact of tariffs to the business. In some instances, we have been able to keep our total product costs relatively unchanged, allowing us to maintain merchandise margin rate without increasing prices. In other instances, we are experiencing increases in product costs as a result of tariffs. The combination of partial cost mitigation and our inventory turns have afforded us the opportunity to wait until after the holidays to implement price increases on exclusive brands without adversely affecting our margin rate in the third quarter. The magnitude of price increases will vary product to product based on current costs as well as where tariff rates settle. Now turning to current business. We are 4 weeks into the third quarter of fiscal '26, and we have continued to see broad-based growth with a consolidated same-store sales increase of 9.3%, driven by an increase in transactions. While we are pleased with the start to our third quarter, as a reminder, October has historically represented 25% of the quarter's revenue with December alone representing half of the third quarter's revenue. We remain cautious of overall consumer sentiment and macro uncertainty that will continue to manage -- and continue to manage our business prudently. That said, we feel very good about the current tone of the business, and we believe we are well prepared for a strong holiday season with exciting marketing campaigns, fresh inventory and a well-prepared field organization ready to provide best-in-class customer service. I would like to now turn the call over to Jim.

Thank you, John. In the second quarter, net sales increased 19% to $505 million. The increase in net sales was the result of the incremental sales from new stores and the increase in consolidated same-store sales. The 8.4% increase in same-store sales is comprised of a 7.8% increase in retail store same-store sales and a 14.4% increase in e-commerce same-store sales. Gross profit increased 20% to $184 million compared to gross profit of $153 million in the prior year period. Gross profit rate increased 50 basis points to 36.4% when compared to the prior year period as a result of an 80% -- or an 80 basis point increase in merchandise margin rate, partially offset by 30 basis points of deleverage in buying, occupancy and distribution center costs. The increase in merchandise margin rate was primarily the result of better buying economies of scale and growth in exclusive brand penetration, partially offset by higher freight expense. The deleverage in buying occupancy and distribution center costs was driven by the occupancy cost of new stores. SG&A expenses for the quarter were $128 million or 25.3% of sales compared to $113 million or 26.5% of sales in the prior year period. SG&A expense as a percentage of net sales decreased by 120 basis points, primarily as a result of lower corporate general and administrative expenses and legal expenses in the current year period. Income from operations was $56 million or 11.2% of sales in the quarter compared to $40 million or 9.4% of sales in the prior year period. Net income per diluted share increased 44% to $1.37 compared to $0.95 per diluted share in the prior year period. Turning to the balance sheet. On a consolidated basis, inventory increased 20% over the prior year period to $855 million and increased approximately 1% on a same-store basis. Total inventory increased as a result of adding 15% new stores and growth in exclusive brands. We feel good about the health of our inventory and our markdowns as a percentage of inventory are both below last year and historical levels. During the quarter, we purchased approximately 73,000 shares of our common stock for an aggregate purchase price of $12.5 million as part of our authorized $200 million share repurchase program. We finished the quarter with $65 million in cash and $0 drawn on our $250 million revolving line of credit. Now turning to our raised outlook for fiscal '26. Driven by year-to-date results and the strong start to our third quarter, we are increasing full year guidance. The supplemental financial presentation that we released today outlines the low and high end of our guidance range for both the fiscal full year and third quarter. I will only be speaking to the high end of the range for both periods in my following remarks. For the full fiscal year, we expect total sales to be $2.235 billion, representing growth of 17% over fiscal '25. We expect same-store sales to increase 6% with a retail store same-store sales increase of 5.3% and e-commerce same-store sales growth of 13%. We expect merchandise margin to be approximately 50.6% of sales, a 50 basis point increase over the prior year period and includes exclusive brand penetration growth of 240 basis points. We expect gross profit to be approximately 37.7% of sales. We anticipate 30 basis points of deleverage in buying, occupancy and distribution center costs due to the occupancy of new stores and 50 basis points of leverage in SG&A. Our income from operations is expected to be $294 million or 13.2% of sales. We expect net income for fiscal '26 to be $219.6 million and earnings per diluted share to be $7.15. We plan to grow new units by 15%, adding 70 new stores during fiscal '26. We expect our capital expenditures to be between $125 million and $130 million, which is net of estimated tenant allowances of $39 million. And for the balance of the year, we expect our effective tax rate to be 26%. For the third quarter, we expect total sales at the high end of our guidance range to be $700 million and a consolidated same-store sales increase of 4.5%. We expect merchandise margin to be approximately 49.7% of sales, a 30 basis point increase from the prior year period, which includes a 200 basis point increase in exclusive brand penetration. We expect gross profit to be approximately 38.8% of sales, which includes 70 basis points of deleverage in buying, occupancy and distribution center costs. Our income from operations is expected to be $107 million or 15.3% of sales, a 100 basis point deleverage compared to the prior year period. We expect earnings per diluted share to be $2.59. As a reminder, income from operations in the third quarter last year benefited by approximately $6.7 million, primarily related to the former Chief Executive Officer's forfeiture of unvested long-term equity incentive compensation and the reversal of cash incentive bonus expense as a result of his resignation. We estimate in the third quarter last year that this was a 110 basis point benefit to SG&A and income from operations and a $0.22 benefit to earnings per share. Now I would like to turn the call back to John for some closing remarks.

Thank you, Jim. We are very pleased with our second quarter and year-to-date results and the positive momentum of the business as we head into the holiday season. I would like to thank the entire team for their hard work and dedication. The company's culture and teamwork are truly remarkable and over the past decade have built Boot Barn into the national retailer it is today. I'm excited about the future growth potential of the Boot Barn brand as we target 1,200 stores across the U.S., and I believe we have the foundation and team in place to achieve this goal. Now I would like to open the call for questions.

[Operator Instructions] The first question comes from Matthew Boss with JPMorgan.

And congrats on a great quarter.

Thanks, Matt.

So John, could you elaborate on the drivers of October's further comp acceleration? And then on the more than 30% increase to your long-term store target today, does this embed any moderation in unit economics? And maybe if you could speak to regions of largest white space opportunity?

Yes, absolutely. Starting with the October business, it was very much in line with the major merchandise categories that we saw in Q2. The one exception being a nice build or acceleration in work boots from a low single-digit comp to a mid-single-digit comp. But otherwise, if we look at women's -- men's and women's boots, men's and women's apparel, it was very much in line with the performance and the comps that we saw in Q2. As we look at the 1,200 store count across the country, our average store right now is a $3.2 million door. And we think that the 1,200 stores will be on average with those stores. We have stores today that do a little bit less than that. We have stores who do a lot more than that. So the 1,200 store count is within the algorithm we have for the current stores that we are building.

Yes. And just to clarify on that, the $3.2 million being the new store economics, our average stores, as you guys know, are higher than that.

And then maybe, Jim, as a follow-up, could you just walk through the bridge between roughly 2% comps forecasted for the second half of the year relative to the October performance, 9% plus. Just maybe how much of this is prudent macro haircut versus anything specific to the business?

Absolutely. So similar to what we normally do, Matt, we looked at the most recent sales volume. In this case, it was the last 3 months, August through October. And similar to what we had starting the year, given that macro uncertainty, including the potential for the softening of consumer sentiment in the second half of the year, we applied roughly a 3% haircut on top of that model to arrive at a plus 2% same-store sales growth in the stores, right? So that's the stores methodology. So if you look at November -- each of the months, November through March, that's kind of how the guidance rolls out a pretty even plus 2% comp in each of those months with a similar haircut as to what we had at the beginning of the year.

Great, best of luck.

Thank you, Matt.

Thanks, Matt.

The next question comes from Peter Keith with Piper Sandler.

Great results, guys. The TAM increase is pretty impressive from $40 billion to $58 billion, so a 45% increase. I was hoping if you could just unpack that a little bit. And is it specific categories, age demographics, the proliferation of Western wear? Like what's driving this large increase just after taking up about 3 years ago?

Sure. So Peter, we partnered with a third party that looked at the demographics, of course, across the country, anyone older than 18. We surveyed roughly 8,000 consumers, looked at the familiarity they had with different brands, eliminated categories that should not be part of the TAM for obvious reasons, looked at the trend of casualization of wearing occasions in the United States, asked some questions about how likely they were to wear certain products. Were they aware of certain types of stores and kind of combined all that information to come up with the new TAM that admittedly included a portion of mainstream denim, by no means all of mainstream denim, but we acknowledge that we've become a little more of a denim destination over the last few years, and that was incorporated into the TAM as well.

Okay. Very interesting. And then you were referencing on the tariffs with price increases, and I just want to make sure we're understanding it. So the branded prices have gone up. You have not taken exclusive brand pricing yet, but you now plan to take exclusive brand pricing up after the holiday. So does that imply you're not really seeing the mix shift that you were hoping to into exclusive brands?

Yes, that's correct. We've seen a slight tick up in exclusive brands, and we're at 41% exclusive brand penetration. And there was -- we wanted to see if that penetration could get higher than that. We have not seen consumer behavior change. They're continuing to buy third-party brands, which is good as well. And as we got through the 6-week kind of test period, we took a moment and we realized that the goods that we're going to sell during Christmas, during the holiday season, there are a few components to the cost structure of those goods. One, some of them were brought in pre-tariff. Two, exclusive brands turn a little bit slower than third party given how much we purchase. And three, we had gotten some onetime concessions from our factories overseas that allowed us to have more margin to support holding prices through that lower -- through the holiday season. As we get out of the holiday season and the tariff situation has not abated and in some countries such as India, as you guys well know, gotten a little bit worse, we are going to pivot to preserving margin on exclusive brands, either by mitigation of tariffs with our factories who have been fairly cooperative or in cases where we need to raising prices on exclusive brands, and we will be doing this style by style to preserve the rate for exclusive brands as we get into our fourth quarter and into next year.

The next question comes from Jay Sole with UBS.

John, I want to ask you about your comments about the success of the websites for Hawx and Cody James. Given the momentum that you've seen in the success of those plans, what's your vision now for where you can take the exclusive brands? Like what can they become beyond just brands in the Boot Barn store? Can they become bigger? And how would you do that now that you've seen that new websites have been successful?

Yes. We're going to continue to focus on making them big as their own brands, which means they're selling kind of pseudo direct-to-consumer on codyjames.com and hawxwork.com. And then -- but the real goal of these sites is to drive the customer into Boot Barn stores. So there's no plans to sell them wholesale or international at the moment. But looking at the number -- the spend that we've put out, the number of impressions we've had on the sites, the number of folks more importantly, that have clicked through to the sites and then again, this was never about driving sales, but it's been a nice additional sales driver. In Q2, it was a couple of points of comp on the e-comm business. And we weren't expecting much, if anything, from a sales standpoint. It was about the storytelling. So if I think about the goal going forward for the next 12 to 18 months, it's to make the customer excited about Cody James and Hawx and Cheyenne and Idyllwind and then realized the best place to buy those brands is inside of the Boot Barn store.

So that's helpful. If I could just follow up with one. Do you plan on expanding the assortment, in other words, offering more categories on those websites and maybe you have room for in the Boot Barn stores just as a way to dimensionalize those brands?

Yes. Those sites will carry the kind of full throated assortment of each of those brands, which I couldn't think of a store that would have the assortment that we have on Cody James or Hawx. We're not going to develop any more product for those sites. But if you want to see the full assortment of Cody James Western and Cody James Work and then our Cody James 1978, which is our higher-end line of denim and boots, that's the place to do it. It's -- we just at an average of 12,000 square feet, could never storytell nor represent the assortment in the way that we can on those sites. And just one other note, it is so much more powerful to tell those stories on the individual sites. You can imagine on bootbarn.com, it becomes a little more difficult as the product is all kind of wrapped in with other exotic boots or other denim. So having a dedicated site where we can tell that dedicated story and show the full assortment, we think, is going to be extremely beneficial.

The next question comes from Steven

Congrats on a nice quarter. To follow up on pricing, can you help us think through the second half? What should AUR be up in the second half relative to some of the commentary you gave? And then I guess a bigger picture of question, why do you think pricing elasticity has performed better than planned? You seem to be bucking the consumer backdrop and transactions are still strong. How much of this is fashion being a tailwind and you kind of positioning yourself as more of a denim destination?

Yes. Starting with the AUR portion, we think AUR in the back half of the year will be up 2% to 3% with slowing transactions. And we think that will -- that the slowing of the transactions, as Jim said, will be more about the macro than the AUR being up 2% to 3%. We've raised the price on third-party brands by mid-single digits. And as I said, as we went through this test, we never really saw a change in consumer behavior, and they continue to buy both exclusive brands and the third-party brands, which is a good thing in some ways. So I think our customer, as we look at -- and I know there's been a lot of discussion in the market about the bifurcation between the higher income customer and the lower income customer. We're not seeing that. We've been looking at our income brackets, and it is incredibly consistent, almost identical to last year in terms of the penetration of the lower-end brackets and the higher-end brackets. So our customer is need-based, more so perhaps than others. I don't think it's driven by a fashion trend. If I had to point to one difference in our business than perhaps others out there is the needs-based component of it.

Okay. That's helpful. The follow-up question I had was on buying and occupancy. So can you help us think through the buying and occupancy leverage point for the second half of the year? And then with the 12% to 15% growth rate on an annual basis for stores, do you see the buying and occupancy point coming down at some point? Or what should we think is the right leverage point at that elevated store growth target?

Yes. Great question. So the buying and occupancy leverage point that we identified at the beginning of the year of a plus 7% comp needed to leverage that remains a place that it's probably inched up a little bit higher really due to new store opening timing and our ability to open some of these stores a little bit sooner into this year. And then as we look out to the first quarter of next year, we've got a really strong pipeline with 20 stores in it. And those have actually moved up further within the first quarter. And so we've got some preopening rent that we'll be expensing in our fourth quarter that we didn't anticipate. So that's kind of the leverage point. So call it a 7.5% this year higher than we would like, but for all good reasons of being able to get some really good stores in the queue and ready to be opened up. As far as the 12% to 15%, we've talked over the last few years of how we -- when we accelerated from a 10% to a 15% new unit opening pace that did create a higher leverage point. I think we're about at the point where those are into the system, and we're kind of at this 15% run rate. We're finishing our fourth year of 15% new units. And so in the next year or 2, I could see that coming down a little bit, maybe it goes down to a plus 6% comp. And then after that, we'll just kind of have to see where we land. But with strong openings of 12% to 15% in the future, even after the next couple of years, I don't see that going down much more just because of the volume of stores we will continue to open up, we will put some pressure on that. But stay tuned. We try to keep you updated every year on what we're looking at for the upcoming year.

The next question comes from Max Rakhlenko with TD Cowen.

Congrats on all the momentum. So first, in your TAM and store analysis, can you speak to where you see the bigger opportunities for growth ahead regionally? And then as you think about store growth, could we see stores potentially get a little bit bigger? I think that that's what you did a few years ago. So just curious how you think about the right store size to generate the strongest productivity?

Yes. As we look at the 1,200 store opportunity, we're going to continue to open stores across the country broadly. We've learned much in the last few years about where we've opened stores and what has worked best. But for competitive reasons, we're not going to go into what we've learned on the call, but we feel very, very good about that road map to open those 1,200 stores. And to the question on size, it's going to be real estate dependent. If you saw what happened with Party City, maybe there were some bigger boxes that became available. So it's going to be more about location than anything. So we're going to continue to be flexible in the size of the box, more so about where it is and its location than the actual size itself.

Got it. Okay. That's helpful. And then, Jim, you previously discussed an opportunity to reach a mid-teens EBIT margin over the longer term. With some of the changes that you've made to sourcing, exclusive brand mix as well as exclusive brand margins, the improvement that's still to come there over the next couple of years. Do you see an opportunity to reach that sooner than you previously expected internally? And then just what's the latest thinking about the margin level that the business can generate as you do get closer to this 1,200 store target?

Yes. Great question, Max. You're right. We've talked about that 15% target. It used to be 10%. We moved past that, and now it's been 15% for a couple of years now, the target operating margin. We had said probably 2 or 3 years ago that it'd be about 5 years to get to that 15%. We've -- at the high end of our range this year, we will -- assuming we achieve that, we will have grown operating margin 120 basis points over a 2-year period. So I would say we're ahead of schedule on that operating margin goal. I think we're going to have to see how we guide next year and the impact of tariffs and the macro and what that does for us. But the opportunity to continue to build new stores in great locations is encouraging. I would say the sourcing strategy that John has talked about for a couple of quarters that were in the early days of implementing. I think there's some really good opportunity to grow margin from that. But as I talked about in the previous question about the buying and occupancy, we do need pretty solid comps to kind of cover that side of it. So I think -- long answer to your short question, I think there's opportunity to get to 15% maybe a little faster than we thought, but I don't want to promise anything beyond that at this point.

Got it. That's super helpful. And best of luck.

Thanks.

The next question comes from Janine Stichter with BTIG.

I wanted to ask a bit about the geographic performance. Curious if you're seeing anything different regionally. And then anything you've seen in terms of weakness with the Hispanic consumer. It doesn't seem like in the results, but something other companies have called out. So just wanted to see if you were seeing it as well?

Yes. We did mention, Janine, the geographic -- kind of commented, and I think it was the script that we're seeing nice growth across all geographies. Similar to what John said earlier about for competitive reasons, I don't want to get too far into the detail on which geographies are performing better. But I would say we saw pretty widespread growth across the country. And then as far as the Hispanic customer goes, we have looked at the demographic information that we have, and we really haven't seen much of a change in the shopping behavior of that customer.

Great. And then just a quick one on tariffs. I think earlier in the year, you had said $8 million of tariff headwinds. And since then there's been some changes in rate, but it also sounds like you're maybe taking a little bit more price on the exclusive brands after the holiday. Just where does that number shake out now relative to the initial forecast?

Yes. I think it's still -- the purpose of the $8 million number was to kind of size up where tariffs were kind of big picture. We've been seeing some really big numbers and wanted to bring that into perspective. And at the time, talked about there being a lot of moving parts, a fluid environment. The tariffs that we spend on inventory don't necessarily get expensed to the P&L until it gets sold, which may be 6 or 9 months later. And so that's not a number we're going to provide an update to at this time. The other piece of it is with the mitigation strategies that our team has been taking and working with the factories, we're able to get the cost of our -- of the manufactured goods down, they're willing to negotiate that down knowing that we have to pay a higher tariff. And so you have a little bit of a blend between what's tariff and what's really lower cost and how that works. So it becomes a little bit difficult to quantify that number as well. So what I would say is that we've factored in tariffs into the margin guide that you see for the balance of the year, and we feel pretty good about that.

And best of luck.

Thanks, Janine.

The next question comes from Dylan Carden with William Blair.

Curious now that you're sort of rethinking longer-term TAM store opportunity, where does online penetration kind of net out in your estimate? It seems like with the growth in AI initiatives, it could be higher, if not meaningfully so. And if that's any sort of -- if there's any repercussions from that from a margin standpoint. I think historically, online has run slightly below retail.

Yes, Dylan, the online business and the omnichannel team is doing a great job. As you saw in the release, we had a plus 24% in October. The business is doing very, very well. They're investing in technology. They're investing in AI. The very nice challenge they have i,s, we're going to open 70 stores with an AUV of $3.2 million, and that's the equivalent of a bootbarn.com every year. So we think it's going to continue to hover around 10%. I don't see any tectonic shift in that penetration anytime soon.

The next question comes from Jonathan Komp with Baird.

I want to ask, John, if you could talk a little bit more about some of the merchandising initiatives that you're pursuing and the effectiveness, whether it's across some of your third-party brands or categories? And maybe within that, specifically for denim, I know denim accelerated Q2 last year and you're -- I believe you're cycling double-digit performance now and looking forward. So any thoughts on the ability to sustain some of the momentum there would be great.

Yes, absolutely. The buying team, the merchants, the visual merchants in the store, they've all done -- and I've been in a lot of stores recently have done an incredible job from a merchandising standpoint. Our inventory levels of full-price seasonal merchandise are in a great place. We're at very, very low levels from a clearance standpoint, and we really have become more of a denim destination. So when we started to cycle that -- those strong denim numbers from last year, those were stronger on the men's side. So we still have a little bit of room to grow on the women's side. And as we come into holiday, we're going to be pushing both third-party and exclusive brand denim more so to the front of the store and having better merchandising of that denim. I've said it before, and I'll say it again on this call, as I look at the top 10 styles in women's denim or men's denim, it is almost exclusively boot cut jeans. It continues to be while folks are coming to Boot Barn to buy their denim. It is very still a traditional silhouette in most cases with a nice mix between third-party and our exclusive brands. We do skew a little more exclusive brands in women's denim. But as we go into holiday, denim is absolutely a focus, and we weren't quite where we needed to be last year from a women's standpoint. We are, to your point, comping the men's side of it, and that will be kind of a comp business, but we feel great about denim going into Christmas and the holiday season.

Okay. Great. And then, Jim, if I could follow up just as you're thinking about setting guidance here for the second half comps, I think you had some helpful color. Is there a way to think about sort of the range of outcomes you've thought into the second half? I know it sounds like a haircut for macro, but -- have you contemplated any potential tailwinds from stimulus or just any other context around a range of outcomes that you see given the recent momentum here?

Yes. Yes. No problem, Jon. It is a wide range of outcomes, right? I mean we would love it if there wasn't an impact from the macro and the haircut that we put in there was not necessary. And I know many will ask us about how strong the October business is. And while it's 4 weeks of business and the slower month of the quarter, it's exciting to see how strong the comps are and how well the business is doing. We haven't contemplated or included in there a tailwind from stimulus or any of these bills that come through that might drive some construction or infrastructure build or any of that. It's just too hard to figure out what quarter that would come into. And so that is not included in there. But we feel good about the full year 4% to 6% same-store sales guide and kind of how we've built that. I don't know if I have anything else to add there.

The next question comes from Sam Poser with Williams Trading.

I just got a couple. One, just -- how many stores by quarter for the balance of the year? I mean, how should we think about that just as a housekeeping. How many stores you opened in Q3 and how many in Q4?

We've got 25 stores in Q3 and 15 in Q4.

And then secondly, one of the things you talked about on the last call in regard to denim was how you narrowed and went deep into the assortment. I'm wondering how you're applying that same concept or if you're applying that -- to what degree you're applying that same concept to other categories, especially in boots across the company and where you are in that, if that is something you're working on?

Absolutely, Sam. It's a great call. We have a group of styles that we call tried and true. It's the top 3% to 4% of styles that make up a disproportionate portion of our sales, and there has been a focus from the merchant team to ensure that we're always in stock on those styles. And I'm proud to say that the team is at 90% in stock on those very small number of styles, roughly 1,000 styles, that make up a much larger portion of sales. So that focus that started with that kind of aha moment with denim a year ago has carried through to the rest of the business. There's always more work to be done for sure, but we are absolutely pursuing tried and true or that going deeper on those tried and true styles.

And are you -- we talked about this before. Are you doing that by region? Like are you getting into the -- sort of into the weeds with it down to region and district levels? Or is that part of the opportunity? And given -- and where were you last year in stock on those tried and trues as a comparison?

Yes. The -- I don't have the percentage in front of me for last year on the tried and trues, it definitely was not at 90%. And I think -- to your question on the weeds, I think there is opportunity there. I think what we do is we get down, and this is a function of spending a lot of time in stores. We get all the way down to individual store levels, but what we're not teasing out, I think, is perhaps how we approach it at the district or even the region level. I'll be in stores and go, why do we have X, Y and

The next question comes from Chris Nardone with Bank of America.

So just going back to the price elasticity part of the conversation. Just curious if you're seeing more elasticity in certain categories when compared to others? Maybe is like work showing less elasticity versus fashion?

We really haven't seen a change in consumer behavior outside of -- there was one particular brand that raised prices by close to 15%, and we saw a drop. It was a small brand, but we saw a change in their business. When you think about AUR increases, the mid-single-digit increases really did not change the consumer behavior anywhere with the exception of this one particular brand that had a much higher increase in their MSRPs, and we saw a demand drop off.

Got it. Okay. And then just as a follow-up. Overall, are you starting to see some more new emerging competition in the Western category given the recent strength? And do you also suspect the holidays will be more promotional relative to last year if you take into account some of the pricing actions from third-party brands?

I'll start with the promotion piece. I don't think it will be more promotional than last year. Our promotional cadence is almost identical to what we had last holiday season. This has always been a very rational industry when it comes to promotions. And I think and I believe it will continue to be so. So we are going to have a promotional schedule very similar to last year.

And we haven't really seen any new recent emerging brands come forth. There are always new entrants into the market. I think at times when, in particular, like ladies Western boots become a little bit more in style or fashionable than some of the more mainstream fashionable department stores and others will sell that, and then they'll get out of it if it slows down. But we haven't really seen any significant sizable entrants into the market.

The next question comes from Jeremy Hamblin with Craig-Hallum Group.

And I'll add my congratulations to the team. I wanted to ask a question on just some of the margin dynamics that you're seeing. So last year, fiscal '25, we knew that there was some catch-up on incentive compensation, and you saw pretty nice gross margin expansion. This year, you've got headwinds, obviously, related to tariffs. And yet your gross margin looks like it's going to be flattish. You're getting nice leverage on SG&A. And this is all kind of with comps roughly similar to what you did in FY '25. As we look ahead I wanted to see if there were other dynamics that we need to think about in FY '27, not that you're guiding, but are there other dynamics that we should be considering here as we look ahead into calendar '26, either on the gross margin or the SG&A side? Or do you think that the leverage points here, all else being equal, meaning no meaningful changes in tariffs, would you suspect that, that's going to play out similarly?

I would expect it to play out pretty similarly. The leverage points that we laid out at the beginning of this year, the buying and occupancy at 7%, that probably stays within the range, maybe comes down a little bit. SG&A probably comes up this year, we just need to be at flat and that probably goes back up to 1.5% or 2%. So I think those things stay pretty similar. We do have a little bit of quarter-to-quarter noise. I called out in my prepared remarks about lapping the reversal of incentive-based compensation in the third quarter that we're up against. But on the full year, I think that it should look pretty similar. There's not anything that we know of now that would be -- throw that out of whack.

Great. And then just as a follow-up question on exclusive brands. So you did some testing here over a 6-week period. You're taking a little bit of price to offset some of the tariff implications. But as you think about penetration of that going forward now with the rollout, very successful with codyjames.com, do you suspect that you're going to get a similar type of step-up in your exclusives? Or do you think the combination of maybe price increases potentially limits the amount of growth that you see in that?

I don't think the price increases made a big difference in either direction. Again, that's what we were testing for the 6 weeks and the consumer continued to buy what they wanted to buy, which was third-party or exclusive brands. And so we will pivot post Holiday to preserve margin. I think longer term, we still are comfortable with getting to 50% exclusive brand penetration, 100 to 200 basis points a year over the next several years. And again, the codyjames.com site, while I'm thrilled with the launch of it and the reaction we've had to it, it launched in the last 2 weeks of the quarter. So it's still very, very early days in terms of what it will do for promoting the entire Cody James brand. So more to come there. But for right now, we're still tracking or looking to that 50% EV penetration over the next 4 to 5 years and 100 to 200 basis points of growth a year. So kind of more back to normal versus where we've been testing over that 6 weeks of lower for longer.

The next question comes from Corey Tarlowe with Jefferies.

Great. I wanted to ask about the store count updated analysis. How do you think about the new stores and where the opportunity is in new versus existing markets that you have line of sight to?

Sure. It's really going to be -- I guess the last time we updated this, Corey, we had more of the new and existing market opportunity as far as there are states we hadn't been in yet or markets we hadn't been in. And now that we've gone across the entire country and open stores, we'll continue to open stores across the entire country. We're not going to get into details on which markets we're going to go heavier into versus others just for obvious competitive reasons, but we do feel very confident in the road map we have.

Okay. Got it. And then just on the updated TAM analysis as well. When you updated the TAM analysis a few years ago post doing it for the first time around the IPO, it felt like the positioning around that update was like, hey, we're actually penetrating this whole new customer base called Just Country, and there's this whole opportunity there. And now you've just upped it by another roughly $20 billion, $18 billion. Is there another kind of customer that you're going after? Or what do you see is driving that next leg of growth in the total addressable market?

Sure. It's really the country lifestyle, the Western and the work have all expanded in the size of the TAM. So we didn't provide that in the prepared remarks, but in the analysis that those expanded. And then John mentioned that mainstream denim has become more of what we sell. And so that's given us part of that increase in the TAM also.

The next question comes from Mitch Kummetz with Seaport Research.

Can you guys elaborate on the recent strength of the e-comm business? I mean, John, you referenced the 24% gain in October. What you didn't say is that on top of a 14% [indiscernible] a year ago, and you've got now [indiscernible] of double digits. So is there anything more you can say about that? What's driving that?

Yes. There's a few different components. We took a look at where that 24% comp was coming from. And one of the new Chief Digital Officer and his team, they've made some nice enhancements around search and other things on the site. We're thinking that's driving north of 100 basis points of that comp. But the biggest pieces are the new channels, so the additional sites, Cody James and Hawx as well as our ability to spend more in the paid space. So there has been -- and I'm sure you see this in your own life, there has been a change in the paid algorithms, both with Meta and with Google over the last several months, and we just have an ability to continue to attain the ROAS we're always looking for, which is north of a 4 and spend into those sales more so than we were able to do in the past. So the new channels are a piece of it, the paid -- and the paid social are a piece of it. And then organic is also a piece, which is, I think, a reflection of the strength of the brand. We see 400 basis points of that growth coming from additional organic traffic coming from the site. So it's people who know the Boot Barn brand. So it's not one particular thing. It is across new channels, paid traffic, site enhancements and organic.

Great. Appreciate that color. And then my follow-up, just on the dedicated exclusive brand websites, is there opportunity for you to do that for other EVs? Or -- and if so, kind of what rollout might you be looking at?

There is. We have one for Idyllwind, and we've always had one for Idyllwind since we started that relationship with Miranda Lambert. But we will be rolling out post holiday a site for Cheyenne, which is our other large women's Western brand, and we'll keep going from there. These have gone very well. We like the ability to tell stories in a very different way than we can on bootbarn.com. And so Cheyenne will be launching post holiday.

The next question comes from Ashley Owens with KeyBanc Capital Markets.

Just wanted to start off really quickly with work. I think it comped similarly to what we saw in the first quarter. Would be curious as to if your view on that category has evolved at all, particularly around whether some of the prior headwinds have fully normalized, if there's still more recovery to go. And then I know you've highlighted that comp trends tend to be lower than the rest of the business, but just anything from an opportunity standpoint to further accelerate this comp, especially seeing as work has expanded under this new identified TAM you've outlined?

Yes. We are -- I am definitely not ready to declare victory on work. We've seen a nice acceleration in comps in October, again, small month, 4 weeks of the quarter. But work boots is doing better. It has comped positive for 2 quarters in a row now. And now the first month of this third quarter, it's comped a mid-single-digit positive. And work apparel has continued to comp mid-single digits now for at least 6 quarters. So we're doing quite well on work apparel. This has been a work boot issue. The relay of our work boots that we talked about on the last call is complete -- has only been complete. I'll caveat this for 2 to 3 weeks at this point. But anecdotally, we're hearing from store managers, from district managers, from customers that it is much, much easier to shop work boots by size and by style. So I'm encouraged by the first few weeks of this. It's been hard to -- or difficult to tease out some of the rainy or cold weather of October versus the work boot relay to figure out what drove that mid-single-digit comp. But the early read is October is -- did do better than Q1 or Q2, which were both positive. So we're heading in the right direction with work boots. We are not ready to declare victory.

Okay. Got it. That's super helpful. And then just one follow-up on the stores. Count has effectively doubled or essentially going to double from the 301 in '22 to crossing over 600 next year potentially. You've now outlined this new long-term opportunity to double again towards 1,200. Would just be curious as the base continues to scale that quickly while you're managing the added operational complexity that comes with a larger fleet while protecting that culture and some of the in-store standards that have really helped to set you apart?

Yes. No, it's a great question, and it's a challenge. And I think we've done a few things to help manage that. I think for starters, the store operations team has done a really nice job of getting these stores opened and they're working extremely hard. And as we grow the store base, we add districts. Each district has roughly 10 stores in it. And so we have a district manager over each of those districts, and they're able to help with those store openings. And we continue to train new store managers, whether they're an internal promotion or a transfer, they need less training. And if they come from outside, we'll train those store managers in an existing store to try to help them develop the culture and learn the process operationally. Opening the new stores is heavily reliant on our real estate department and the team that we've got there and identifying these locations and managing the leases and the updates and all different kinds of things that are involved in that, the construction of these stores. They've proven to be just incredible at getting these done, and they will expand as we have more stores that need to be opened and then the folks in the DCs and managing the product flow and the merchant teams. I could go on, but we are careful in how we expand headcount in the company, but we're also very careful in who we hire and making sure that the culture fit works well so that we don't lose the magic that we've got here at Boot Barn.