BOOT - NYSE

Good day, everyone, and welcome to the Boot Barn Holdings, Inc. Third Quarter Fiscal 2026 Earnings Conference 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 Finance. Please go ahead, sir. Thank you. Good afternoon, everyone. Thank you for joining us today to discuss Boot Barn's third 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 thirty days in 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 webcast, refer you to the disclaimer regarding forward-looking statements that is included in our third quarter fiscal 2026 earnings release as well as our filings with the SEC reference the net 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 third quarter fiscal 2026 results, provide an update on current business, and discuss the progress we have made across each of our four strategic initiatives. Following my remarks, Jim Watkins will review our financial performance in more detail, then we will open the call for questions. We are very pleased with our third 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 16% compared to the prior year to $706 million, including consolidated same-store sales growth of 5.7%. In addition to strong sales growth, merchandise margin rate increased 110 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 $2.79 during the quarter. I am very proud of the entire team's ability to execute on our four strategic initiatives, which drove very strong results. Now turning to current business. Through the first five weeks of our fiscal fourth quarter, we have continued to see broad-based strength in same-store sales despite the negative impact of recent winter storms. On a consolidated basis, quarter-to-date same-store sales increased 5.7%, which we estimate was negatively impacted by approximately $5 million of reduced revenue due to the storm closures resulting from the recent winter storms. Prior to the winter storms, for the first twenty-six days of the fiscal quarter, consolidated quarter-to-date comps increased approximately 9.1% driven by growth in transactions. We feel very good about the underlying tone of the business and the start to our fourth quarter. I will now spend some time discussing each of our four strategic initiatives. Let's begin with new store growth. We opened a record 25 stores in the third quarter, ending the period with 514 stores. I am very pleased that our new store engine over the past several years has consistently exceeded our sales, earnings, and payback expectations throughout all regions of the country, and these strong results have continued with the stores opened during the past twelve months. As a reminder, new stores on average are on pace to generate approximately $3.2 million in annual sales in their first full year of operation and pay back their initial investment in less than two years. Looking forward, we have planned 15 store openings in the fourth quarter, which would bring the fiscal year total to 70 new stores. As we look towards fiscal 2027, the pipeline remains very strong, and we estimate 20 projected openings in the first quarter, which will begin in April. Given the consistent strength of our new store openings, we believe that we are well-positioned to continue expanding the Boot Barn brand for years to come as we head towards our target of 1,200 stores in the United States. Moving to our second initiative, same-store sales. Third quarter consolidated same-store sales grew 5.7% with brick-and-mortar same-store sales increasing 3.7%. Store comp growth was driven by low single-digit increases in both basket and transactions. From a merchandising perspective, we saw broad-based growth across all major merchandise categories. Our Men's and Ladies Western Boots businesses comped positive high single digits, and our men's and ladies apparel businesses slightly outperformed the chain average, led by mid-teens same-store sales growth in denim. Our work boots business also comped positive mid-single digits during the quarter. From an operations perspective, I'm very proud of the field team's hard work, which resulted in another strong holiday season. The field team continues to provide best-in-class customer service and drive record sales volume while hiring and training seasonal staff, managing inventory flow, and opening new stores. I would like to thank the field and the entire Boot Barn team for their partnership and execution. Moving to our third initiative, omnichannel. In the third quarter, online comp sales grew 19.6%. We are very pleased with the growth in our online channel, particularly the positive results from our new initiative to develop exclusive brand sites. As a reminder, one of our goals beginning this year was to market exclusive brands separately from the Boot Barn brand. Earlier this year, we launched websites for Cody James and Hawx and are very pleased with the initial results on both rollouts, which have primarily attracted new customers. Looking forward, we are planning to launch standalone sites for more of our brands, including Cheyenne, our leading ladies brand, and Cleo and Wolf, our ladies country lifestyle brand. Now to our fourth strategic initiative, merchandise margin expansion and exclusive brands. During the third quarter, merchandise margin increased by 110 basis points compared to the prior year period, driven by buying economies of scale, supply chain efficiencies, and 240 basis points of growth in exclusive brands. I am proud of the team's ability to grow merchandise margin and exclusive brand penetration while staying committed to a full-price selling model, particularly during the holiday season. I would now like to provide an update on our pricing strategy related to exclusive brand products. We will be increasing exclusive brand ticket prices on some products during the fourth quarter. We are pricing our goods in a manner that will allow us to continue to drive growth in merchandise margin rate. Our team has continued to diligently work with our factory partners to mitigate the impact of tariffs through cost concessions, which have allowed us to maintain pricing on some goods. New exclusive brand products that we have added to the assortment have already been priced accordingly at the factory level. Given the fluid environment we are operating in, the team continues to be flexible and look for ways to drive growth in merchandise margin. I would like to now turn the call over to Jim.

Thank you, John. In the third quarter, net sales increased 16% to $706 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 5.7% increase in same-store sales is comprised of a 3.7% increase in retail store same-store sales and a 19.6% increase in e-commerce same-store sales. Gross profit increased 18% to $281 million compared to gross profit of $239 million in the prior year period. Gross profit rate increased 60 basis points to 39.9% when compared to the prior year period as a result of a 110 basis point increase in merchandise margin rate, partially offset by 50 basis points of deleverage in buying, occupancy, and distribution center costs. The increase in merchandise margin rate was primarily the result of buying economies of scale, supply chain efficiencies, and growth in exclusive brand penetration. The deleverage in buying occupancy and distribution center cost was driven by the occupancy cost of new stores. SG&A expenses for the quarter were $166 million or 23.6% of sales, compared to $139 million or 22.9% of sales in the prior year period. Income from operations was $115 million or 16.3% of sales in the quarter, compared to $99 million or 16.4% of sales in the prior year period. Included in SG&A and income from operations in the prior year period was a net benefit of $6.7 million related to the company's former CEO's resignation. Excluding this benefit in the prior year period, this year's SG&A expense as a percentage of net sales leveraged 40 basis points and income from operations as a percentage of net sales leveraged by 100 basis points. Net income per diluted share in the third quarter increased to $2.79 compared to $2.43 per diluted share in the prior year period. Included in net income per diluted share in the prior year period was an estimated $0.22 benefit related to the former CEO's resignation. Excluding this benefit in the prior year period, EPS increased by 26%. Turning to the balance sheet. On a consolidated basis, inventory increased 17% over the prior year period to $805 million and increased approximately 4% on a same-store basis. Total inventory increased as a result of adding 15% new stores, growth in customer inventory, and growth in exclusive brands. We feel good about the health of our inventory, and our markdowns as a percentage of inventory are below historical levels. During the quarter, we purchased approximately 67,000 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 $200 million in cash and zero drawn on our $250 million revolving line of credit. I would now like to provide an update on our fourth quarter guidance, which is outlined in our supplemental financial presentation. As the presentation lays out the low and high end of our guidance range, I will only speak to the high end of the range in my following remarks. For the fourth quarter, we expect total sales at the high end of our guidance range to be $535 million and a consolidated same-store sales increase of 5%. We expect merchandise margin to be approximately 50.5% of sales, a 60 basis point decrease from the prior year period. Included in our fourth quarter guidance is 20 basis points of expected growth in product margin, offset by a combined 80 basis point increase in shrink and freight expense compared to the prior year period. As a reminder, we are up against extremely strong merchandise margin expansion last year of 110 basis points, which was helped by very favorable shrink and freight. Our guidance for the fourth quarter of this year contemplates more normalized shrink levels and embeds the current run rate for freight expense, which, while higher than the prior year period, is lower than historical levels and in line with the third quarter. We expect gross profit to be approximately 36.1% of sales, which includes 50 basis points of deleverage in buying, occupancy, and distribution center costs. Our income from operations is expected to be $59 million or 11.1% of sales. We expect earnings per diluted share to be $1.45. Based on our year-to-date performance and fourth quarter outlook, we are raising our full-year guidance. For the full fiscal year, we now expect total sales to be $2.25 billion, representing growth of 18% over fiscal 2025. We expect same-store sales to increase 7% with a retail store same-store sales increase of 6% and e-commerce same-store sales growth of 15%. We expect merchandise margin to be approximately 50.8% of sales, a 70 basis point increase over the prior year period. This margin increase includes exclusive brand penetration growth of 240 basis points. We expect the gross profit to be approximately 38% of sales. Our income from operations is expected to be $301 million or 13.4% of sales. We expect net income for fiscal 2026 to be $226 million and earnings per diluted share to be $7.35. Now I would like to turn the call back to John for some closing remarks.

Thank you, Jim. I'm very pleased with our third quarter and year-to-date results, and I believe we are well-positioned for a strong finish to our fiscal year. I would like to thank the entire team across the country for their dedication to Boot Barn and our customers. Now I would like to open the call for questions.

We will now begin the question and answer session. On your telephone keypad, if you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed, and you would like to withdraw your question, please press star then 2. As this call is scheduled for one hour, please limit yourself to one question and one follow-up. At this time, we will pause momentarily to assemble our roster. The first question comes from Matthew Boss with JPMorgan. Please go ahead. Congrats on another nice quarter.

Thanks, Matt.

So John, on the 9% comp, for the first twenty-six days of January before the storms, could you elaborate on the drivers of acceleration that you had seen relative to the third quarter? Was the sequential improvement broad-based or any specific category call-outs? And what did you embed for the remainder of the quarter? To get to the three to five guide?

Yes. Thanks, Matt. Great question. When we look at those January and the nine-one, it was broad-based across most major merchandise categories. The one category worth calling out was the work business. The work apparel business was a little soft given some of the warmer weather we saw in January. And as we came into the winter storms or winter storm Fern, we saw the needs-based business both on the work boot and the work apparel side pick up from their incoming trend as we had the first five weeks of business, that got us to that five-seven despite the closures on the Saturday and Sunday, the end of fiscal January and beginning of fiscal February. And outside of the work business, which is driven by outerwear and some warm weather, it was broad-based acceleration across all major merchandise categories. When we look at the remaining of the quarter and getting to that three to five guide, you know, we looked at the March business, as a reminder, is close to half the quarter's business. A five-week month combined with Houston Rodeo. And the comps get a little bit tougher in that March time frame. And we use that along with our typical forecasting to get to that 3% to 5% comp despite starting with a nice January, up nine-one. And that implies, Matt, the February and March combined comp is a 4.5% consolidated, 3.6% in stores, and 13% e-com.

Great. And then maybe a follow-up, John, just take a step back. FY '26, now the second consecutive year of mid to high single-digit comps. Could you speak to your level of overall visibility today as you plan the business? Are there any structural constraints that you see to sustaining this kind of momentum? Anything changing from a productivity perspective as you look at the box by category, just kinda thinking ahead relative to the last two years that we've seen.

Yeah. No, Matt, if we look back historically, we can comp in that low to mid-single-digit range. And we have done it many of the last ten years. And we feel great about the new store. We feel great about the new store pipeline, the broadness of the performance across all major merchandise categories, so structurally, there's nothing that gives us concern in comping the comp.

Great. Best of luck.

Thanks, Matt.

The next question comes from Steven

Great. Afternoon. Thanks very much for taking my question. I wanted to ask on the merchandise margin outlook for the fourth quarter. Could you just elaborate on it a little bit more detail? Because it sounded like supply chain came in better than expected in the third quarter. So is this outlook for 4Q? The freight impact kind of unchanged versus how you're speaking to it previously? And then on the product margin being up 20 bps ex freight and shrink, much of that suits your brand penetration? And you just wanna talk through buying economies of scale.

No problem, Steve. You know, as a reminder, we're for the fourth quarter merchandise margin were up against two ten points of expansion last year. So tougher comps are part of that. Your first part of your question was on the shrink and freight, guess, more specifically, we're expecting 40 basis points of a headwind on the shrink side of things. It was abnormally low last year. Versus what we were accruing for this year. We're expecting that to be more in line with what we've got accrued when we do our full physical inventory counts here over the next couple of months. As far as the freight goes, yes, we have had overall this year, we're expecting the freight expense to be better than it was last year as a rate as we about, think it was on the last call, that's a little bit lumpy throughout the year. Where we've seen I think, the first quarter was really good freight. The second quarter was a headwind. And this quarter, was the third quarter was positive again. And the fourth quarter works expecting that to be down. I think that normalizes a little bit more as we head into next year. We had some a lot of fluid activity with tariffs and bringing product in sooner and later. And we've also been negotiating with transportation partners and getting some of those rates down. That's helped us in some of those quarters. And so that's really been the story of freight. The fourth quarter freight is really kind of in line with our Q3. It's just the prior year comparison that's a little challenging. And then on the product margin, the exclusive brand penetration, we're expecting that to be about half of the 20 basis points of product margin expansion and the other half coming from buying economies of scale and getting better and pricing.

Okay. Thanks for that detail. And then you gave a commentary about openings of, I think, 20 in the first quarter. How should we think about level of openings for fiscal 'twenty seven? I know preliminary at this point, but how should we think about that overall?

Yes, great question. Yes, pipeline is very strong for the first quarter with about 20 lined up in the first quarter. The timing of the rest of the stores and ultimate number as we roll out the rest of the year, we feel confident that we'll be able to open within our 12% to 15% new unit range. But it's as far as how that flows out, it's still a little early for us to tell.

Okay. Fair enough. Best of luck. Thanks again.

Thank you, Steve.

The next question comes from Peter Keith with Piper Sandler. Please go ahead.

Hi. This is Alexia Morgan on for Peter Keith. For taking our question. We were wondering what the strength of Work Boots in the quarter and the success of some of those new strategies you've talked about to reinvigorate that category. Are you reevaluating where you think category can go long term? And then similarly, are there other categories that you think could be optimized in a similar way?

Yeah. Great question. I've been very pleased with the performance of Work Boots thus far. Again, a mid-single-digit comp when the entire business in the quarter was a 5.7%. We think the marketing, the remerchandising of work boots, getting some better choices for the consumer in from various brands are all helping that performance. All that being said, the work business tends not comp comp up. As quickly or comp down as quickly as some of some of the other business. It's a very needs-based kind of stable business. Blue-collar employment has been stable. So I don't see any outsized growth coming. I think we are reinvigorating it, and growing from where it was. But it always is a little more stable than what we see in the rest of the business. In terms of other merchandise categories that we're looking at, we're always looking at places where we can improve. I'm not going to share some of these on this call, but there's a couple of major merchandise categories I feel strongly there's opportunity in and up competitive reasons, I'll keep those to myself for right now.

Okay. Thank you. And then one more. We were wondering the sales impacted by the winter storm. Are those stores kind of up and running again? Is trend back to normal there? And then when you've seen storm impact in the past, are sales typically made up or is it delayed or more eliminated? Thank you.

Yeah. The sales impact of the storms, the first of those two winter storms that went across the country, Fern, were more impactful to the business second one hurt us on the in the Northeast last week. Business seems to be back to normal. And recovering. As far as a snapback or people going back into the stores and recovering, those sales, that's not something we typically will gain back after a storm.

Thank you.

Thanks, Alexia.

The next question comes from Dylan Carden with William Blair. Please go ahead.

Thanks. Jim, you've kind of addressed this, but the upside to gross margin relative to the initial outlook for the last three quarters is that just some of the volatility in shipping tariff mitigation uncertainty and should we kind of limit expectations for that kind of upside go forward? And a related question, kind of as the leverage point on occupancy has kind of crept up here as you've accelerated your store growth, I think there's some sort of growing anxiety around kind of margin and how you kind of keep improving profitability. Any broader kind of longer-term outlooks of leverage points and merchandise margin opportunities would be appreciated.

No problem, Dylan. As far as the upside of the gross margin, you're right. It's been a really nice year for us, particularly on the merchandise margin with the full year looking to come in at the high end of the range. 70 basis points better than last year. When we first guided back in May in the middle of all of tariff news and things coming forward, we had guided merch margin, you know, down 30 to flat. And so it's been a really nice pickup for us throughout the year. And I think that's come from a variety of things as we've seen exclusive brands continue to do really well and outgrow what we was going to be 100 basis points of expansion this year. We saw the benefit of the hard work that the merchant team and the planning teams had done around buying the right product and getting that in into the stores and in front of our customers and selling that. And so that's provided some upside on the you know, what we call buying economies of scale and some of those vendor discounts. And so it has been a nice year. And then the freight, we had some renegotiated transportation contracts that also provided some upside. So it has been a really nice year and it's kind of culminated here with seven years. The last seven years, we've had over 740 basis points. I think 740 is the number. Basis points of merge margin expansion. So you're right. The track record has been great as we look to next year. We're planning to continue to grow merchandise margin. Obviously, we're not guiding how much that we're going to guide for next year, but typically, we would say that it's going to be somewhere in that 25 to 40 basis point range is our starting point. But we'll get back to you on man what that number looks like. We're not out of ideas. I mean, John's talked about sourcing opportunities and we're always looking at things around supply chain, logistics, as we continue to grow sales at a fast clip that allows us to go back and get better discounts from our vendors or our factories. So we're pretty optimistic looking forward on the margin opportunity. As far as the leverage points go, we do have a leverage point for buying an I think that's maybe where the question is focused, buying occupancy and distribution center costs. We need a plus seven to leverage that. And that's really just a function of growing 15% new units as we've talked about in the past. This year, that's going to be a little bit higher because of the we've got those 20 stores we're talking about opening in Q1, and those are going to open earlier in Q1 than what we originally anticipated. And so that puts a little more pressure on the current year. But the leverage point, I expect that to continue to be somewhere in that 7% range as we get into the year, but we'll give you an update on that. What's been nice through all of this is I know the leverage point's high. It maybe makes some people nervous. But we've we're able to looks like we're on track to grow our earnings you know, per share 25% this year, expand our EBIT margin to 90 basis points at the high end of the guide. So feel pretty good about where things are. And, you know, this is all generating some really nice profitability for us.

Really appreciate it. Thank you.

Thanks, Dylan.

The next question comes from Janine Stichter with BTIG. Please go ahead.

Hi, thanks for taking my question. I was hoping you could elaborate a bit on the pricing strategy for exclusive brands. It sounds like you're taking those prices throughout Q4, but I think that you've done some more to speak on what you're seeing. And then maybe just speak to what the rollout looks like. In terms of raising prices throughout Q4. Thank you.

Great question. As we talked about the last couple of calls, we had held lower for longer on exclusive brands. We had gone to the holiday season. We knew I knew we were going to take price increases. We didn't want to disrupt the store team during the holiday. So we had the room as you saw in the margin growth during Q3 to hold until post-holiday. We get to the January time frame, and now we're going style by style. And looking at where we can take a price increase that covers the margin rate for product or maybe a little bit more if we decide to hold on another particular product. So this is a style by style conversation. If you look at the price increases, as well as the concessions from our factory and new product that we're bringing in from those factories. You know, these are rough numbers, of course, but you could say it's a third, a third, a third of where we will see either, not we don't need to make a price increase because of concessions. We're gonna do the price increases at the source at the factory since it's new inbound product. Or these are products that are already on the ground here and we need to, you know, quote unquote catch up and retag those products either in our DC or in our stores. And that is underway today. So, the retags, which is the piece that has to happen here, is happening as we speak. We had a slug of products that were repriced in January, and we will continue to do another group in February. And, the remainder in March.

Great. And then you mentioned the concessions you got during the peak of tariffs from your suppliers. Is there anything we should be aware of as we think about starting to lap some of those initial concessions? I'm just thinking of things that might not repeat next year.

I think it's a great question, right? As the tariff rolled out throughout the year, initially, it was a big wave and we went back and were able to get some concessions. But as things have normalized throughout the year, we've gotten to a pretty good steady state with many of our factory partners. And those concessions are pretty run rate at this point. Our focus as we look into next year is working on expanding our merchandise margin rate. And so working with our good partners moving some product around to other countries that have lower rates, The latest update on India tariffs going to 18% is a positive for us as well. So we think that as we head into next year, we're in a pretty good place with our partners. And we'll continue to challenge them and work on improving pricing. We feel pretty good about where we are today.

Great. Thanks so much.

Thanks, Janine.

The next question comes from Jay Sole with UBS. Please go ahead.

Great. Thank you so much. My question is about the exclusive brand websites. John, you touched on it a little bit in the open prepared remarks. Just tell us a little bit more about how your thoughts and your plans have developed for these websites in the last ninety days and what you see going forward?

Sure. As a reminder, we launched codyjames.com and hawkswork.com. We're the first two exclusive brand sites that we launched. And the goal of these sites always was storytelling. It's the place we can really tell the Cody or the Hawks story to the consumer. It's difficult to do given the way people shop bootbarn.com. You know, they may look for a particular category of product or refining by size and they don't land on those storytelling pages even if we had built them on bootbarn.com. So having a dedicated site, and if you go to codyjames.com, you can see the difference in how the brand is represented there in the storytelling that happening with the videos on the homepage, we can really drive home the ethos of those brands on those sites. So that was the purpose. We want people to want the brands know the brands, and then realize the best place to buy those brands is inside a Boot Barn store. And not online. What has been a nice side effect is the amount of that we've seen on those sites. You know, we didn't expect to and again, this is a percent of a percent of our business. It's, you know, a piece of the online growth to be sure. But it was not something that was expected and the bigger surprise was most of those customers are net new to Boot Barn. And so this isn't a transfer in that's happening from, you know, sheplers.com or bootbarn.com or the stores. These are people that are discovering Hawx and Cody through the social marketing that we're doing for sites. So it's been encouraging and encouraging enough that we are, you know, all in on having similar sites for Bienwolf. Cheyenne, and 45, which is our more rodeo-inspired brand.

Got it. Maybe if I can ask a separate question. In the slide deck, you showing the new store productivity and the payback time on the new stores. I think it looks like based on the deck, the year one net sales of a new store, like $3.2 million. You know, maybe that's called 80% new store productivity or a little bit less than that. Can you just talk about how fast those stores are ramping up to maturity? That's the question.

Yeah. The new stores open if they're opening at three two and as you mentioned around 75% of what a mature store is. The path to get them up to, call it, point 2,000,000 is around five or six years. The waterfall has been pretty healthy. We talked about the stores that we've opened over the last few years are resulting in about 100 basis point tailwind to the consolidated comps. And that's because this first comp year of a new store is comping roughly in line with chain average, maybe slightly better. But then that second comp year, we're seeing roughly a five-point improvement over the chain average which helps obviously get their volumes up. And then after that second comp year, they continue to outperform the chain at about three or four to five points better. And so that gets them up there. I think that takes about five or six years to get them up to that chain average.

Got it. Okay. Thank you so much.

No problem, Jay.

The next question comes from Jonathan Komp with Baird. Please go ahead.

Yes. Hi. Good afternoon. Thank you. John, I want to follow-up just the that quarter to date acceleration you saw underlying prior to the storms. I know you mentioned it being broad-based, but any other thoughts on the drivers of the strength there? And as you think about the business today, could you talk about just segmenting out what you're seeing across your exclusive brands versus existing third-party brands, but then also new brands as well?

Yeah, absolutely. When we look at the acceleration in January and then over the five weeks of quarter to date, it is mostly driven. So there is a bit of back over the five weeks. And if you just look at that the pre-storm time frame, it was transaction-driven. It's balanced. We look at our third-party brands, they are performing well. Our exclusive brands are performing well. Again, it's a small month in the quarter. March is almost half of the quarter as a reminder, and so it's been a nice start. It has been broad-based. Nothing really else to call out around men's and women's western boots or men and women's western apparel either by or exclusive brand versus third-party. It has been very steady across kinda all those different ways you could slice the business. And then Oh, sorry. No, go ahead and jump in.

John, I mean, plus nine is a big number and as we look back over the last twelve months, the holiday shopper, which is our December shopper, does behave a little bit differently than they behave the rest of the year. And so the plus nine isn't too far out of the range of what we were seeing if you look at our chart on page nine of what we've been seeing in that monthly call. Over the last twelve months.

Okay. Great. And then just a follow-up, John, I'm curious on the new units, are there any anecdotes you could call out that give you confidence today looking forward to the long-run target? And then just more broadly on the algorithm, I think pretty consistently in the past, talked about really a 20% EPS growth algorithm. Is that still the construct or the framework that exists here today? Thank you.

Yes, John. I'll take that one. The 20% EPS is still there. When we moved from we went public, we had a 10% unit growth in our long-term algorithm, like, that got us to 20% EPS growth. As we shifted that to 15% new unit growth and then 12% to 15% that does bring down the EPS slightly. And so maybe it's an 18% EPS growth that room just because of the number of new stores that we're bringing into the at still need to comp up. So that's the math behind it.

Then around the unit growth, anecdotally, the new stores perform very much like existing stores. We're not seeing big swings in the merchandise mix. We've said this before, I think on the public call, EEC you see it even skew a little more western perhaps in non-legacy markets outside Arizona, Texas, California, given there's not as many independent retailers or as much competition, So when we open stores in Florida, Jersey, City, the Northeast, Huntington Beach recently opened, The stores, the business, the composition of it looks very similar to our legacy stores.

That's great. Thanks again.

Thanks, Jonathan.

The next question comes from Max Rakhlenko with TD Cowen. Please go ahead.

Great. Thanks a lot, guys. So first, on exclusive brands, I think previously the strategy was to maintain similar price points. Compared to the national brands. So given some of the changes to pricing on both sides as well as the customer reactions, how are you thinking about the price points the Chewahead? Could EVs potentially be priced a little bit lower, or do you think that that's going to normalize over time?

Got it. It appears that is gonna Go ahead, sir.

Yeah. It seemed like you got cut off there. No worries. Yeah. We think believe it will normalize over time. The one place I've told the team I wanna be very careful is if we're breaking through a psychological price point. Right? If we've gotta take a low single-digit price increase on a boot that's gonna break it through $200 and it's sitting at $195 or something along those lines right now. I would rather hold on that and try and preserve and grow that merchandise margin rate with a price increase on a few accessories or other goods that where those price increases could be easily absorbed. Those are one-off cases, but that's why we're doing this style by style. But I think overall, it will normalize. But if there's places where we can be opportunistic and hold on psychological price points, the team is doing that. Got it. That's helpful. And then your comps just broadly are obviously very nicely outpacing the industry. So curious, where do you think you're taking the most share from? And specifically, any comments on the farm and ranch channel and separately DTC as of your vendors are going more direct?

Yeah. The DNC, we are 90% stores, right? So the D2C guys, they do a nice job and they can spend a little more on or take a lower ROAS I should say on some of their advertising from a digital perspective. So they have a little bit of an advantage there. At the same time, they're, you know, they're promoting to the world. So, you know, they're not a big concern. When I think of the market share, and our ability to kind of excel from a comp standpoint. I put much of the credit on the team. When I think of the execution from the of inventory, the availability from a sizing standpoint, the field team, and the customer service that we offer. I think those are the pieces that make a difference everybody else. And the everybody else is independent retailers. It's the western competitors and I think it's also general retailers. When you think of us becoming a bit more of a denim destination, I think we're taking market share from traditional department stores where perhaps people bought their Wrangler or their Levi or their bootcut jean at those stores and have discovered our customer service our assortment, and our depth of inventory versus some of those other that I've seen recently in channel checks that I've done myself.

Awesome. Thanks a lot. I appreciate the color.

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

Thanks, guys. We have a quick follow-up on the leverage point discussion. Just wondering, you still feel comfortable with the roughly 1.5% leverage point in SG&A as we look out into next year? And then are there any major cost line items that are seeing more inflation than normal that we should be thinking about?

Yes, Chris. The leverage point is at 1.5% for SG&A. That is right in the range of where we would expect to see that going into next year. As we look at costs that seeing outsized inflation, can't think of anything, any line item that is tracking higher than in an outsized way as we move into next year. I think the SG&A line should look much more normalized than it was this year compared to last year with some of the onetime things we had last year with some legal fees and the reversal of some incentive comp from some management change.

Okay. Very clear. And then on the apparel side, outside of denim, are there any specific categories that are gaining momentum either within the third party or private label brands? And is there any way that we can gain comfort that the majority of this momentum in this business is still driven by your core Western customer rather than maybe a more fashion or less sticky customer? Are there any anecdotes or facts you can share to give us some confidence on that front?

Yeah. You know, I look at the product and sells every week in our stores. I look at our top 50 products across all the major merchandise categories, and it is very much a traditional western silhouette when it comes to both the tops and the bottoms. Again, we've tried some more contemporary collaborations with different brands that the consumer has self-selected out of. Nothing crazy, nothing on the fashion side, but things that were a little more contemporary and really didn't work in some of those tests. So every week at I look at the boots that are selling, you know, some of these boots have we've been selling the same style for fifteen or twenty years, and a lot of broad square cowboy boots, it's not a fashion r toe roper boot, which is kind of that entry-level cowboy boot on the men's side at least. The women's boots are all very much, you know, brown leather boots and there might be one or two fashion boots in there that have, you know, bedazzling or they're white boots that perhaps someone picked up for a wedding. But by far and large, it is traditional western styles that have been selling for years. So we're not seeing anything in the mix of what is performing that would tell us it's someone coming in, you know, to get ready for a concert or an event or are new to Western.

Okay. Thanks, guys. Good luck.

Thank you.

The next question comes from Jeremy Hamblin with Craig Hallum. Please go ahead.

Thanks, and I'll add my congratulations on the strong results. I want to come back to the initiatives and in particular, the e-comm developments here of your exclusive brands. So just first, in terms of what you've done so far with Hawke's Cody James, what type of impact are you seeing online for those brands on bootbarn.com? Versus what you're seeing with the Hawks or the Cody James website. What are the costs associated with that? And you know, in terms of just the timing of rolling out the next few, know, are they gonna be kind of all rolled out in a similar timeframe? You know, just wanna see if you could get some color on that.

Sure. As a reminder, if you look at the mix of our e-commerce business, we have bootbarn.com, it's our digital flagship by far our largest e-commerce site. And then we have other places that we sell Country Outfitters, Sheffler's, Amazon, are some of the other channels that we sold on for years. When we look at that bootburn.com business, which is the majority of our e-commerce business, it continues to perform incredibly well. The customers buying on Cody and Hawx are net new customers. For the most part, these are not people that are transferring over from stores or from .com. So we're quite confident given, how we look at the customer profiles and bump them up against our be rewarded program, our 10,600,000 be rewarded customers, and seeing that they don't exist in those databases that we're gaining net new customers. The marketing strategy for those sites are also very different from what we do with Boot Barn. We are driving awareness of those brands via social. Where much of the digital marketing we do for Boot Barn is more, Google advertising and all the different tools that, you know, the Google and Microsoft offer to target people who are already typing in. I want to find a white cowboy boot or I wanna find a western yolk shirt. These sites are about brand awareness via social versus targeting people who are already told the search engine that they have intent. So different way to market them. Again, more about storytelling, drive customers into stores, and from everything we see, they are new customers to Barnabas. On the cost side, sorry. On the cost of the sites, one of the to the second question. One of the nice things we've done here, and anybody can, you know, see this if you visit bootbarn.com or these sites. These sites are built on Shopify and it's just much quicker and easier and there's not a heavy lift from a development or a CapEx standpoint to do this. And so that's, you know, a page from the playbook of many, if not all of the D2C players in any industry at this point. And so for you know if the question behind the question is hey, this big CapEx investment on these sites, It's not. We are nimble. They are quick to stand up. We're gonna launch Cheyenne and Cleo here in Q4. And rank will likely be in Q1.

Got it. Helpful. And then just one more. In terms of traffic counters and what you're learning from conversion rates, how that's you know, tying into some of the storytelling you're doing, and some of the marketing initiatives that you've had? Any learnings that you can share with us? From that?

Nothing material right now. We're just about to hit comp traffic. Can So we'll have comp conversion rates. I look at our top-performing stores from a conversion rate standpoint on a regular basis, I'm looking for that positive deviance to kind of tease out what they're doing better than everybody else. The ones with material traffic, of course. And we're gonna use it in this coming fiscal year use those traffic counters for some of the new digital marketing initiatives. One of the adjustments I've made is the amount of digital marketing dollars we're gonna spend against driving folks or with the goal of driving folks or customers into Boot Barn stores, versus just buying on bootbarn.com or any of the other sites. And so, we'll have more to share on that as we get into next fiscal year.

Great, thanks for taking the questions.

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

Great. Thanks. Maybe just to start to follow-up on some of the, you know, own brands websites here. But as you prepare to launch Cheyenne, Cleon, Wolf, just how should we think about the incremental TAM expansion as you get from reaching new female customers who may not be shopping at Boot Barn stores yet?

I think it's gaining market share more than the expansion of the TAM. We upped the TAM from $40 billion to $58 billion and we're going to do $2.25 billion this year. So when you think of the opportunity, it is more gaining market share than an expansion of the TAM. And it will make us easy it will make it easy for easier for us to tell stories from a meta and TikTok and further up the funnel standpoint when we talk about these brands. So can we gain more market share? I believe we can. That's part of the reason we're building these sites, but it's market share versus expanding the TAM further. I think it's gaining those country lifestyle women's customers in case of Clio and Cheyenne.

Okay. Got it. And then just a follow-up a little bit on the gross margin for the fourth quarter. Could you just walk us through the clean bridge there as you lap some of the unusually favorable shrink from last year and then I think you mentioned some of the lumpiness in freight. Where you expect those to kinda settle as we normalize into next year? And then another one just on pricing, as you move to that style by style approach for the price increases in the fourth quarter, just how you're thinking about AUR given some of the third-party price increases that we've already seen been taken in the market, just what you've seen so far in terms of elasticity, particularly where third-party price moves may be going you know, already taking place in some of the areas that you have overlap in and then just any specific categories outside of, you know, I think the $1.95 boot price you mentioned that you're more mindful of as you implement these changes. Thanks.

Yes, I'll jump in and just start with the AUR question as we get into the fourth quarter, we expect that to be in that 2% to 3% increase. For the fourth quarter. And that contemplates all the price increases, exclusive brands and third-party goods. And then as we look into next year, we'll give you an update on that more as we move and get further along. But we typically see kind of a low single-digit AUR increase. And maybe that'll be slightly higher as we move into next just given what we've seen with price increases over the last year. And then as far as the margin bridge, I'd really think about it as a one-quarter blip as far as the shrink and the freight and as we move into next year, those should both normalize, and then we'll be back to growing product margin with maybe a slight benefit next year with freight, just given some of the renegotiated contracts that we've had and some of the favorability there. Assuming that all the transportation costs and rates stay similar or globally.

Great. Appreciate the color. Thank you.

Thanks, Ashley.

The next question comes from John Keippur with Goldman Sachs. Please go ahead.

Hey. Thank you, guys, for spotting me in. Appreciate it. Just a question about the composition of the 4Q same-store sales guide. It looks like a little bit of a desal online I just wanna get a sense of why that might be the case. Despite the new sites being up and running and given the strength in 3Q. And, it also looks like, you know, the other side of the coin is that retail is looking bit better than I expected. Despite even the storm impact. So I guess on the retail side, what gives you the clarity for you know, behind that guide And kinda, like, what have you seen in terms of same-store sales recovery in retail since the storm has mostly abated? And, I think it's how much of the confidence there is hinging on the March activation maybe around the Houston rodeo?

Sure. So I think it's a little too soon to talk about the recovery. I mean the second of these storms hit this last weekend and had we had some store closures and on Sunday. And so just a couple days. So I think what's really giving us the confidence to guide the way we have both on e-commerce and in stores is looking at the broader trend coming into February and March, we look back at what we saw in October, November, December, January, the sales volumes that we've seen. And then we go back into historical, seasonality and see how things flow out from a sales perspective based off of what we've seen in the last four months. So nothing that we've seen over the last couple of weeks makes us nervous about the way we've guided that. As far as the Houston rodeo goes, there is a little bit of a shift between February and March. If you're looking at our slides. And so some of last year's March strength really kind of moved over from February. There are also other things happening in March that make it a bigger volume month. Spring is starting. People are there shopping more. And so even outside of the Texas markets where they do kick off the rodeo season, we do see some nice volume there. We're seeing a broad base across the country, and that's given us the confidence to guide where we've been there. As far as the new exclusive brand sites, there's not really any marketing slated for those in the over the next couple of months. It'd be a next year thing. And as a reminder, we'd look at a 3% marketing spend. And so it would really come from within that budget, things and reallocating spend around within that budget.

Great. And then a very, very small follow-up. Sorry. Go ahead.

No, I just can't I couldn't remember if I had covered all of the pieces of the question. So please follow-up with the follow-up.

Sure. The last one is just kind of bookkeeping. But you guys mentioned that there would be buying in occupancy costs from 1Q twenty twenty seven landing in 4Q, and you guided for 50 bps of deleverage in 4Q. So that's inclusive of the pull forward So is that that's correct, right? So it seems like the actual customer is organic. So the organic buying and occupancy deleverage is actually sequentially better than it was in March.

Yeah. Yeah. The right. It's a little bit skewed in the fourth quarter because compared to last year in the fourth quarter, we have more stores opening at the start of the next year than we had a year ago. We the way the bookkeeping works is do record a couple of months of preopening rent while we're getting the store built out, set up, stock. And before we start ringing sales.

Okay. Great. It's a good news it's a good news story that we have more occupancy expense. It just pressures us a little bit now in the fourth quarter. But then as we move forward, that's a positive.

Right. And it implies that the actual kind of without the pull forward from 1Q, it actually is sequentially better in 4Q than it was 3Q. That's sort of what I'm trying to get at. Well, like, it does actually kind of improve on an apples-to-apples kind of basis.

Is that right?

Yeah. That's right.

Okay. Great. Thank you.

Perfect. Thank you, John.