Release Date: August 07, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Revenue increased by 10%, with consolidated same-store sales growth of 1.4%.
- E-commerce same-store sales grew 6.7%, driven by improved online marketing capabilities.
- First quarter merchandise margin expanded by 100 basis points due to supply chain efficiencies.
- Boot Barn Holdings Inc (BOOT, Financial) opened 11 new stores, ending the period with 411 stores across 46 states.
- Net income for the first quarter was $39 million, or $1.26 per diluted share, exceeding the high end of guidance.
Negative Points
- Workwear segment, particularly work boots and apparel, continues to lag with low single-digit negative growth.
- SG&A expenses increased to $107 million, or 25.2% of sales, up from 24.9% in the prior year period.
- Two weeks of challenging business in mid-July led to negative comp sales, attributed to external factors like weather and concert lineups.
- Higher online marketing expenses and corporate general and administrative expenses contributed to increased SG&A costs.
- Despite positive trends, the company remains cautious due to overall consumer sentiment and macroeconomic uncertainty.
Q & A Highlights
Q: Jim, could you help break down the drivers behind the return to positive same-store sales here in the first quarter? As you look across traffic, new customer acquisition, and basket components, what gives you confidence in sustaining positive comps moving forward?
A: In terms of the components, it was great to see broad-based sequential improvement across merchandise categories, geographies, and channels. The first quarter started with slightly negative transactions per store, but both May and June saw positive growth. We saw a positive growth in the size of the basket itself, driven mostly by AUR, with some help from an increase in UPTs. While we have exceeded our long-term algorithm of comps for a long period, we remain cautious due to macro uncertainties.
Q: Could you elaborate on the puts and takes in the second quarter gross margin and the overall flow-through rate?
A: The 35% flow-through number remains the model for upside. For the second quarter, we expect a 60 basis points increase in merchandise margin driven by supply chain efficiencies, with more buying economies of scale kicking in during the second half. Exclusive brand penetration is expected to be down slightly in Q2 but will ramp up in the second half. Buying occupancy is expected to deleverage by 90 basis points due to higher occupancy from new stores and negative same-store sales.
Q: Could you talk about the company-specific initiatives like bringing in lower price point products and shifting ad spend? How have these initiatives played out?
A: We focused on ensuring balance across pricing and function versus fashion. We counteracted inflation by bringing in third-party products to fill in good price points and balanced our assortment between function and fashion. From a marketing standpoint, we shifted gears to focus more on call-to-action to generate immediate demand. Additionally, we equipped our field teams to build the basket, resulting in a return to positive growth in units per transaction.
Q: Can you provide an update on the Morgan Wallen sponsorship and its impact on customer demographics?
A: The Morgan Wallen sponsorship has generated significant excitement and customer capture, particularly among younger and more fashion-oriented demographics. While it's hard to draw direct causality, the correlation between the sponsorship and the growth in our customer database is evident. The impact is particularly strong in markets where his concerts take place.
Q: How should we think about your expectations for the back half of the year, given the sales guidance change?
A: For the second quarter, we expect store comps to be similar to Q1 at +1%. For the third quarter, we expect flat store comps, and for the fourth quarter, we anticipate about +1%. We have maintained a similar level of conservatism in our guidance, considering potential disruptions from elections, a shortened holiday calendar, and macro uncertainties.
Q: What are you seeing in the workwear side of the business?
A: The work boot business saw sequential improvement from Q3 into Q4 and slight improvement into Q1, currently around -1%. Work apparel, which is smaller, is negative low single digits. We are making changes to the assortment and hope to see positive numbers in the next couple of quarters.
Q: Can you provide an update on the improving trends and whether they are coming more from legacy shoppers or new customers?
A: Over the last few years, we've seen growth in both legacy and new customers. In the most recent quarter, we increased our customer database by about 1.2 million people, or 16% year-over-year. The growth is distributed across Western, work, and fashion customers, with a bit more growth in newer segments like fashion and country.
Q: How are you thinking about sourcing if tariffs were to increase?
A: We've reduced our exposure to China to about 30% for our own orders. While we don't plan to pull completely out of China due to quality and delivery reliability, we continue to derisk our exposure. We have managed through increased tariffs before and feel confident in our ability to handle potential cost increases.
Q: What are you doing differently in the online channel, and what is the expected penetration rate?
A: We expect online penetration to hover around 9-10% for the foreseeable future. We've made assortment changes, set up unique landing pages, and improved our online marketing capabilities. The effectiveness of Google's PMAX tool and managing spend based on a fixed return on ad spend have contributed to growth.
Q: Can you elaborate on the new exclusive brand Cody James Black 1978?
A: Cody James Black 1978 is an elevated price point extension of Cody James, starting with boots and expanding into high-end cowboy hats and sport jackets. It's now in almost 100 stores and online. The brand targets a market created by other high-end brands and offers merchandise margin accretive business.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
