Boot Barn : Third Quarter 2025 Transcript

Published: 2025-02-21 09:15:24 ET BOOT

Corrected Transcript

30-Jan-2025

Boot Barn Holdings, Inc. (BOOT)

Q3 2025 Earnings Call

Total Pages: 20

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Boot Barn Holdings, Inc. (BOOT)

Corrected Transcript

Q3 2025 Earnings Call

30-Jan-2025

CORPORATE PARTICIPANTS

Mark Dedovesh

James M. Watkins

Senior Vice President, Investor Relations & Finance, Boot Barn

Chief Financial Officer & Secretary, Boot Barn Holdings, Inc.

Holdings, Inc.

John Hazen

Interim Chief Executive Officer & Chief Digital Officer, Boot Barn

Holdings, Inc.

......................................................................................................................................................................................................................................................

OTHER PARTICIPANTS

Matthew R. Boss

Corey Tarlowe

Analyst, JPMorgan Securities LLC

Analyst, Jefferies LLC

Peter Jacob Keith

Jeremy Scott Hamblin

Analyst, Piper Sandler & Co.

Analyst, Craig-Hallum Capital Group LLC

Steven Zaccone

Ashley Owens

Analyst, Citigroup Global Markets, Inc.

Analyst, KeyBanc Capital Markets, Inc.

Max Rakhlenko

Jonathan R. Komp

Analyst, TD Cowen

Analyst, Robert W. Baird & Co., Inc.

Ethan Saghi

Analyst, BTIG LLC

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Boot Barn Holdings, Inc. (BOOT)

Corrected Transcript

Q3 2025 Earnings Call

30-Jan-2025

MANAGEMENT DISCUSSION SECTION

Operator: Good day, everyone, and welcome to the Boot Barn Holdings, Inc. Third Quarter 2025 Earnings Call. 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.

Mark Dedovesh

Senior Vice President, Investor Relations & Finance, Boot Barn Holdings, Inc.

Thank you. Good afternoon, everyone. Thank you for joining us today to discuss Boot Barn's third quarter fiscal 2025 earnings results. With me on today's call are John Hazen, Interim 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 third quarter fiscal 2025 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 Interim Chief Executive Officer. John?

John Hazen

Interim Chief Executive Officer & Chief Digital Officer, Boot Barn Holdings, Inc.

Thank you, Mark, and good afternoon. Thank you, everyone, for joining us. On this call, I will review our third quarter fiscal 2025 results, discuss the progress we have made across each of our four strategic initiatives, and provide an update on current business. Following my remarks, Jim Watkins will review our financial performance in more detail, and then we will open the call up for questions.

We are very pleased with our third quarter results, which reflect broad-based growth across all major merchandising categories in stores and online and across all geographies. During the quarter, revenue increased by 17%, including consolidated same store sales growth of 8.6%. Same store sales in both the stores and e- commerce channels were positive, with stores increasing 8.2% and e-commerce increasing 11.1%. We also opened 13 new stores in the quarter, bringing our year-to-date total to 39 new units.

From a margin perspective, third quarter merchandise margin expanded 130 basis points driven by supply chain efficiencies, better buying economies of scale and growth in exclusive brand penetration. The strength in sales

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Boot Barn Holdings, Inc. (BOOT)

Corrected Transcript

Q3 2025 Earnings Call

30-Jan-2025

and margin combined with solid expense control, resulted in earnings per diluted share of $2.43 during the quarter, which was $0.36 above the high end of our guidance range and compares to $1.81 of earnings per diluted share in the prior-year period. Included in our third quarter earnings per diluted share is an approximately $0.22 benefit related to the CEO transition. I am extremely pleased with our third quarter results and I am very proud of the entire team's execution and dedicated effort during the critical holiday season.

I will now spend some time discussing each of our four strategic initiatives. Let's begin with expanding our store base. We opened 13 stores in the third quarter, ending the period with 438 stores in 46 states. Our new store engine continues to meet our sales, earnings and payback expectations throughout all regions of the country. As a reminder, we model new store performance at $3 million of revenue with a cash-on-cash return on capital of approximately 60% in the first year of operation.

We have 21 planned store openings in the fourth quarter, which would bring the fiscal year total to 16 new stores opened, meeting our commitment of 15% new store growth annually. We continue to expand our store footprint across the country as we expect to open stores this quarter in Alaska, Vermont and Rhode Island, which would bring our total store presence to 49 states. Given the consistent success of our new store openings across all geographies, we believe that we have the market potential to double our store count in the US alone over the next several years.

Moving to our second initiative, driving same store sales. Third quarter consolidated same store sales grew 8.6%, with brick-and-mortar same store sales increasing 8.2%. Store count growth was driven by a 6% increase in transactions, plus a 2% increase in UPT, which drove a larger average transaction.

From a merchandise category perspective, the third quarter comp sales were positive across all major merchandise categories, led by the combined ladies western boots and apparel businesses which comped positive low-double digits. This was followed by the combined men's western boots and apparel business, which comped positive high-single digits. Our denim business, which is included in the figures just mentioned, comped low-double-digit positive, and our combined work boots and apparel business comped low-single-digit positive in the quarter.

From a store operations perspective, I am very proud of our field organization across the country for contributing to another successful holiday season. They continue to provide best-in-class customer service while driving record sales volume and hiring over 5,000 seasonal store associates.

From both a supply chain and merchandising perspective, we were extremely pleased with the smooth flow of inventory through our distribution centers and stores and our overall preparation for the holiday season, which we believe contributed to the strength of our third quarter results. During store visits leading up to Black Friday and throughout the entire holiday season, we consistently received positive feedback from our store associates. Many of them highlighted how the earlier preparation, particularly advanced floor sets and inventory availability, enabled them to better prepare for the anticipated holiday shopping surge, ultimately enhancing their ability to meet customer demand and maximize sales.

From a marketing perspective, the team continues to expand our brand awareness and carefully tailor communication to each of our customer segments. We believe the use of radio, direct mail, artist collaborations, digital advertising and connected television has expanded our customer reach and driven increased traffic to our stores. These efforts have also increased the number of active customers in our loyalty program to 9.4 million, a 15% increase over the prior-year period.

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Boot Barn Holdings, Inc. (BOOT)

Corrected Transcript

Q3 2025 Earnings Call

30-Jan-2025

Moving to our third initiative, strengthening our omnichannel leadership. E-commerce comp sales grew 11.1% in the third quarter. We are very pleased with the consistent strength of our online business and the team's partnership with the field organization. During the critical weeks between Black Friday and Christmas, we were able to ship approximately half of our online orders from our stores, a result of our in-store inventory being accessible to online customers.

From an organizational perspective, we are happy to announce that Jon Kosoff has been hired as our new Chief Digital Officer. Jon was previously the Chief Digital Officer at Tilly's and prior to that was the Vice President of E- commerce and Marketing at Taco Bell. Jon brings a wealth of experience to our team, and his leadership will allow me to focus my efforts on my current role.

Now to our fourth strategic initiative, merchandise margin expansion and exclusive brands. During the third quarter, merchandise margin increased by 130 basis points compared to the prior-year period, driven by supply chain efficiencies and better buying economies of scale. Exclusive brand penetration increased by 180 basis points, which was on top of 310 basis points of expansion in the prior-year period. We continue to believe we can achieve merchandise margin expansion through a combination of supply chain efficiencies, better buying economies of scale and growth in exclusive brand penetration.

Turning to current business. Through the four weeks of our fiscal January, we have continued to see broad-based growth in same store sales. On a consolidated basis, fiscal January same store sales have increased 8.3%, with our store comp increasing 7.2% and our e-commerce business increasing 17.1%. We feel very good about the current tone of the business and the start to our fourth quarter.

I'd like now to turn the call over to Jim Watkins.

James M. Watkins

Chief Financial Officer & Secretary, Boot Barn Holdings, Inc.

Thank you, John. In the third quarter, net sales increased 16.9% to $608 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 8.6% increase in same store sales is comprised of an increase in retail store same store sales of 8.2% and an increase in the e-commerce same store sales of 11.1%.

Gross profit increased 20% to $239 million, compared to gross profit of $199 million in the prior-year period. Gross profit rate increased 100 basis points to 39.3% when compared to the prior-year period as a result of a 130-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 supply chain efficiencies, better buying economies of scale and growth in exclusive brand penetration, while the deleverage in buying, occupancy and distribution center costs was driven by the occupancy costs of new stores.

Selling, general and administrative expenses for the quarter were $139 million or 22.9% of sales, compared to $124 million or 23.8% of sales in the prior-year period. SG&A expense as a percentage of net sales decreased by 90 basis points, primarily as a result of the forfeiture of incentive-based compensation related to the CEO transition.

Income from operations was $99 million or 16.4% of sales in the quarter, compared to $75 million or 14.4% of sales in the prior-year period. Net income was $75 million or $2.43 per diluted share, compared to $56 million of net income or $1.81 per diluted share in the prior-year period.

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Boot Barn Holdings, Inc. (BOOT)

Corrected Transcript

Q3 2025 Earnings Call

30-Jan-2025

Turning to the balance sheet. On a consolidated basis, inventory increased 23% over the prior-year period to $690 million and increased approximately 1% on a same store basis. We finished the quarter with $153 million in cash and zero drawn on our $250 million revolving line of credit.

Turning to our raised outlook for fiscal 2025. The supplemental financial presentation that we released today outlines the low- and high-end of our guidance range for both the full year and the fourth quarter. I will be speaking to the high-end of the range for both periods in my following remarks.

As we look to the fourth quarter, we expect total sales at the high-end of our guidance range to be $460 million. We expect consolidated same store sales to increase 7.8% with a retail store same store sales increase of 7.2% and an e-commerce same store sales increase of 12.1%.

We expect gross profit to be $168 million or approximately 36.5% of sales. Gross profit reflects an estimated 120- basis-point increase in merchandise margin, partially offset by 60 basis points of deleverage in buying, occupancy and distribution center costs. Our income from operations is expected to be $51 million or 11.2% of sales. We expect earnings per diluted share in the fourth quarter to be $1.26, and our effective tax rate is estimated to be 25.4%.

Based on our third quarter performance and fourth quarter outlook, we are raising our full year guidance. For the full fiscal year, we now expect total sales at the high-end of our guidance range to be $1.92 billion, representing growth of 15% over fiscal 2024. We now expect same store sales to increase 5.9%, with a retail store same store sales increase of 5.4% and e-commerce same store sales growth of 10.2%.

We now expect gross profit to be $716 million or approximately 37.4% of sales. Gross profit reflects an estimated 110-basis-point increase in merchandise margin, driven by supply chain efficiencies, better buying economies of scale and growth in our exclusive brand penetration of 100 basis points.

Our income from operations is expected to be $241 million or 12.6% of sales. We expect net income for fiscal 2025 to be $182 million, representing growth of 24% over fiscal 2024. We now expect earnings per diluted share to be $5.90, a $0.30 increase from our prior guidance of $5.60. We continue to expect our capital expenditures to be $120 million. We expect to open 21 stores in the fourth quarter and 60 new stores this fiscal year, or 15% new unit growth.

Now, I would like to turn the call back to John for some closing remarks.

John Hazen

Interim Chief Executive Officer & Chief Digital Officer, Boot Barn Holdings, Inc.

Thank you, Jim. We are very pleased with our third quarter results and we 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.

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Boot Barn Holdings, Inc. (BOOT)

Corrected Transcript

Q3 2025 Earnings Call

30-Jan-2025

QUESTION AND ANSWER SECTION

Operator: We will now begin the question-and-answer session. [Operator Instructions] And your first question today will come from Matthew Boss with JPMorgan. Please go ahead.

Matthew R. Boss

Analyst, JPMorgan Securities LLC

Great. Thanks. And congrats on another nice quarter.

John Hazen

Interim Chief Executive Officer & Chief Digital Officer, Boot Barn Holdings, Inc.

Thank you, Matt.

James M. Watkins

Chief Financial Officer & Secretary, Boot Barn Holdings, Inc.

Thanks, Matt.

Matthew R. Boss

Analyst, JPMorgan Securities LLC

So, John, maybe to start off, could you elaborate on traffic and demand that you're seeing across categories in January or just any areas of continued momentum post-holiday? And then as we think about moving forward, any change in the business as you're thinking about it relative to the historical low- to mid-single-digit comp algorithm?

John Hazen

Interim Chief Executive Officer & Chief Digital Officer, Boot Barn Holdings, Inc.

Yeah. Matt, I'll start with the first part and then get to the second question. So as we got into January, and we, of course, have to start with January is the smallest month of our fourth quarter four-week post-holiday and then we get into February and, of course, our five-week March. But looking at the specific departments in January, we saw an acceleration in both men's and women's western categories, specifically boots and apparel. So we saw nice business in those four major merchandise categories.

As we look forward to the remainder of the quarter, there's nothing that we're seeing that makes us feel any different about the business. It was a strong start to our fourth quarter and we think that will continue. Easter, of course, is pushed out into our next fiscal year, but that's a very, very small piece of our business, so we're not expecting any major impact from that.

And then as we look to next year, again, too early to guide, but we always say we like to start with the low- to mid- single-digit algorithm and start to build our budget from there. But again, we're too early to guide or talk about next fiscal year.

Matthew R. Boss

Analyst, JPMorgan Securities LLC

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Boot Barn Holdings, Inc. (BOOT)

Corrected Transcript

Q3 2025 Earnings Call

30-Jan-2025

Great. And then maybe, Jim, just as we think about merchandise margin and multiyear drivers of merchandise margin, could you help break down what remains, whether it's private label, and just basically how to think about some of the remaining levers in the merchandise margin?

James M. Watkins

Chief Financial Officer & Secretary, Boot Barn Holdings, Inc.

Sure. As we look to Q4, and I'll start there and then go bigger picture, we expect to see the merch margin driven by the same drivers we've seen in third quarter and much of this year. We're guiding that fourth quarter merch margin up 120 basis points, with a little more than half of that increase driven by supply chain efficiencies and the balance coming from better buying economies of scale, vendor discounts and 200 basis points of exclusive brand penetration.

As we get to next year, the supply chain efficiencies really started about a year ago, and so we've seen the benefit of those throughout this year, roughly 70 basis points of improvement on this year. Those will stay with us, but we're not planning those to continue with us and improving in any significant manner. So right now, I'd strip those out. As we look to merchandise margin drivers outside of those as we get into next year, we tend to think of the base line as being 30 or 40 basis points of merchandise margin expansion.

We expect that over the next five years or so, we'll average roughly 200 basis points of exclusive brand penetration growth. So, maybe half of that 30 to 40 basis point comes from continued exclusive brand penetration growth, and then the other half coming from better buying economies of scale that we've seen this year. It's really partnering with vendors and continuing to see the volume discounts that they've given us, whether that's taking possession of a full container load of product and getting a better discount, or the scale that we've been growing at and the growth our vendors have seen has allowed us to go back and get some discounts from our vendor partners. And they've been really cooperative in that and we expect to continue to see those discounts increase as we move over the next five years.

Matthew R. Boss

Analyst, JPMorgan Securities LLC

Great. Congrats again.

John Hazen

Interim Chief Executive Officer & Chief Digital Officer, Boot Barn Holdings, Inc.

Thank you.

James M. Watkins

Chief Financial Officer & Secretary, Boot Barn Holdings, Inc.

Thanks, Matt.

Operator: And your next question today will come from Peter Keith with Piper Sandler. Please go ahead.

Peter Jacob Keith

Analyst, Piper Sandler & Co.

Thank you. Good afternoon. So, John, at ICR a couple of weeks ago when you were describing fiscal Q3, you talked about it wasn't really a fashion trend or anything. I think you're attributing a lot of the strength to just execution and bringing in more inventory. So I guess the heart of the question is, do those elements now continue

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Boot Barn Holdings, Inc. (BOOT)

Corrected Transcript

Q3 2025 Earnings Call

30-Jan-2025

in January and the rest of this fiscal Q4 and maybe even in the coming quarters? You did note inventory does remain elevated, not thinking about as a markdown risk, but is this an investment that you think will continue to drive same store sales growth?

John Hazen

Interim Chief Executive Officer & Chief Digital Officer, Boot Barn Holdings, Inc.

Yeah, Peter, I do. Looking at January, as we came out of Q3, from an inventory standpoint we're very happy where we ended the quarter and began our fourth quarter. Our markdown inventory is lower than it was last year and lower than pre-COVID times. So I feel that we're in a very good inventory position without a fashion risk.

As I talked about when we were at ICR, I took another peek at the top 200 products selling, which make up a disproportionate amount of our sales. And nothing stood out as high fashion. So we feel that it's not a fashion business. We are in a good position inventory wise, not seeing any supply chain disruptions. So, feel quite good about the inventory position and the type of inventory as we go into this fourth quarter and into next year.

Peter Jacob Keith

Analyst, Piper Sandler & Co.

Okay. Very good. And maybe just following up on the last question, with the merch margin expansion remaining quite impressive, the supply chain efficiencies, Jim, could you speak to that? It seems like there's both a combination of lower rates and then you're leveraging a more centralized distribution center delivery to the store. Are those dynamics going to get lapped or is that something that you'll continue to try to leverage for several years?

James M. Watkins

Chief Financial Officer & Secretary, Boot Barn Holdings, Inc.

Yes. We will continue to focus on finding efficiencies and leveraging those. I just don't want people to put in their models another year like we had this year as far as efficiencies. As we get to May, we'll fine-tune that. And as we build those up from really the bottom - the bottoms up, we'll really be able to give you a better number on that.

But it's probably going to be in that 10-basis-point maybe increase next year, not 70 or 60 basis points.

And just to give you some more detail on that, as you called out, it was negotiated rates or renegotiated rates with the shipping logistics partners, and we'll continue to work with them. And as we get scale, we expect to see better rates with them. The Kansas City distribution center that went live over a year ago, we really have been seeing some nice efficiencies there. Our folks in Fontana have continued to operate at a very high level and helped with efficiencies. And so we don't expect those to top out at this point and expect to see some more efficiencies there, but it's not going to be in the same tune what we saw this year.

Peter Jacob Keith

Analyst, Piper Sandler & Co.

Okay. Very helpful. Thanks so much, guys.

John Hazen

Interim Chief Executive Officer & Chief Digital Officer, Boot Barn Holdings, Inc.

Thanks, Peter.

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Boot Barn Holdings, Inc. (BOOT)

Corrected Transcript

Q3 2025 Earnings Call

30-Jan-2025

James M. Watkins

Chief Financial Officer & Secretary, Boot Barn Holdings, Inc.

Thanks, Peter.

Operator: And your next question today will come from Steven Zaccone with Citi. Please go ahead.

Steven Zaccone

Analyst, Citigroup Global Markets, Inc.

Great. Good afternoon. Thanks very much for taking my question. First question was on the top line. Clearly, the business is seeing a lot of strength. Are there areas where you'd like to see incremental improvement over the course of calendar 2025, whether that's by channel or product category? And then along those same lines, what gives you confidence you can comp the comp in some of these categories where you've seen improvement already, like ladies and men's western?

John Hazen

Interim Chief Executive Officer & Chief Digital Officer, Boot Barn Holdings, Inc.

Yeah. I'll jump in with where we'd like to see some improvement. As we talked about this sequential improvement in January over Q3 in men's western boots and apparel, women's western boots and apparel, of course, something had to have a little more of a struggle and that was work boots. So, there's no crisis in work boots by any means, but we'd like to see our work boots perform better and we're doing some work around each brand lace-up versus pull-on to figure out what more we could do on the work boots side. So, work boots is the one place I'd like to see some improvement in the business.

James M. Watkins

Chief Financial Officer & Secretary, Boot Barn Holdings, Inc.

And we're not guiding next year by category or guiding next year at all at this point. The strength we have seen in denim, we expect that to continue to be with us. We also have some easier comps in the ladies business early on in the year, and we have some really nice momentum in that business and so we would expect to see that carry forward. And the men's business has been really strong all year and really for longer than a year. We expect that momentum to continue with us. But the ladies has a little bit easier path to comping the comp.

Steven Zaccone

Analyst, Citigroup Global Markets, Inc.

Okay. That's very helpful. And then I hate to be the guy that asked the tariff question, but just given some of the headlines, can you just help us understand your current exposure to Mexico, maybe how you're reacting to some of these headlines? And then remind us what happened the last time when tariffs were put into place. How did you go about negotiating some of that pricing with vendors versus passing it on to the consumer?

John Hazen

Interim Chief Executive Officer & Chief Digital Officer, Boot Barn Holdings, Inc.

Yeah. As a reminder, we're 30% on order with China, 25% on order with Mexico. China is more rubber sole performance boots and apparel, of course. And then Mexico is where we make our leather sole cowboy boots and where some of the best leather sole cowboy boots or most of the leather sole cowboy boots are made.

We are testing other countries, but we're not going to overreact right now. There are great boots made in Mexico and there's supply chain efficiencies we're looking at in terms of how we bring those boots up and how we go

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Disclaimer

Boot Barn Holdings Inc. published this content on February 21, 2025, and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on February 21, 2025 at 14:13:52.699.