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Boot Barn’s 900-Store Ambitions Look Promising

Boot Barn’s net sales increased 12.4 percent over the prior-year period to $351.5 million on net income of $32.1 million, or $1.06 per diluted share, as the Western lifestyle retailer continues to capitalize on its brick-and-mortar expansion.

The company also gave preliminary results for the first four weeks of the third quarter. Total net sales growth in the month was 7.9 percent, with same-store sales coming in at a 1.3 percent decline thanks largely to e-commerce sales falling 17.6 percent. Brick-and-mortar same-store sales ticked up 1.7 percent in the October weeks.

In a Nutshell: The second quarter saw brick-and-mortar same-store sales increase 3.9 percent, largely driven by a 4 percent increase in transaction size due to an 8 percent increase in average unit retail price. Average transactions per store were approximately flat versus last year, according to Jim Conroy, Boot Barn’s president and CEO.

In an earnings call, Conroy also highlighted top-performing categories including men’s Western apparel, men’s and women’s denim, work apparel and work boots and cowboy hats. Sales of men’s Western boots and women’s non-denim apparel declined on a comp store basis over the prior-year period, and sales of women’s boots were almost flat, the CEO said.

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Conroy also outlined the growth of Boot Barn’s exclusive brands. During the period, the retailer’s exclusive brand penetration grew to 32.3 percent, more than 350 basis points (3.5 percentage points) higher than the prior-year period. On a three-year basis, private-label product penetration has grown more than 10 percentage points.

Inventory increased 83 percent to $641 million, from $350.3 million in the year prior. This increase was primarily driven by additional inventory in the company’s distribution centers in order to support new store openings and the exclusive brand growth.

Average comp store inventory increased approximately 39 percent over the prior year in order to support the sustained increase in average unit sales volume.

“When evaluating our in-store inventory against our updated sales projection, we have approximately 23 weeks of forward supply, which is in line with our historical average,” said Jim Watkins, Boot Barn chief financial officer. “The final portion of the increase in total inventory can be attributed to new stores, both the 43 new stores opened over the past 12 months as well as the inventory needed to stock the pipeline of stores that will open over the next couple of quarters.”

Gross margin was 36.7 percent of net sales, down 110 basis points (1.1 percentage points) from the 37.8 percent of net sales in the prior-year period. Gross profit of $129.1 million increased primarily due to higher sales.

The gross margin decline was driven by 160 basis points (1.6 percentage points) of deleverage in buying, occupancy and distribution center costs, partially offset by a 50-basis-point (0.5 percentage-point) increase in merchandise margin. The merchandise margin expansion was primarily a result of growth in exclusive brand penetration and better full-price selling.

Boot Barn now anticipates additional freight headwinds in the back half of the year, particularly in the third quarter as the company sells through the inventory burdened with peak freight charges. Third-quarter freight expense is expected to be a 200-basis-point (2 percentage point) headwind and fourth-quarter freight expense will be 90 basis points higher than in the prior year period.

Watkins said freight rates are falling going into 2023.

“Fortunately, we are now regularly booking containers at spot rates 50 percent lower than recent peaks and have eliminated most off-site storage fees with the opening of our new distribution center in Kansas City, Mo.,” Watkins said. “Given these encouraging trends, we anticipate reverting back to normalized freight expense as we move into next fiscal year.”

Cash and cash equivalents totaled $19.7 million, with $146.8 million already drawn under the company’s $250 million revolving credit facility.

Boot Barn revised its full-year guidance, now expecting total sales of $1.65 billion to $1.67 billion, representing growth of 10.9 percent to 12.2 percent over the prior year. This is a slight downgrade from the initial expectations of $1.68 billion to $1.70 billion, or 12.9 percent to 14.2 percent growth over the prior year.

The new same-store sales range is between a 1 percent decline and a 0.5 percent gain, with brick-and-mortar same-store sales of 2 percent to 3 percent and e-commerce same-store sales expected to plummet 11 percent to 13 percent. Prior estimates for same-store sales ranged from approximately flat to 2 percent growth.

Full-year net income is now anticipated to be between $173.3 million and $179.3 million, down from prior estimates of $182.7 million to $188.6 million. Net income per diluted share of $5.70 to $5.90, down from the previous range of $6.00 to $6.20 per diluted share. Gross margin is expected to be 37.4 percent of sales, down from the initial 37.6 percent projection.

For the third quarter, total sales of $502 million to $514 million are expected, representing growth of 3.3 percent to 5.8 percent over the prior year.

Same-store sales are expected to fall between 3 percent and 5 percent, with brick-and-mortar same-store sales predicted to decrease 2 percent or remain flat. E-commerce same-store sales are still expected to decline 17 percent and 21 percent.

Boot Barn forecasts net income to range within $1.71 to $1.83 per diluted share, while gross margin is anticipated to be 36.8 percent of sales.

The earnings report came a day after Boot Barn unveiled its partnership with material handling equipment supplier Industrial Procurement Services (IndPro) and packaging company Packsize to enhance warehouse automation.

The partnership aims to build a custom automated system to help employees use right-sized boxes for shipping. These innovations aim to help combat labor shortages, better support sustainability goals and cut packaging waste.

At its 140,000-square-foot Wichita facility, Boot Barn has started using packaging platforms that offer an automated inline fulfillment system that now moves up to 1,000 packages every hour.

“As this year’s holiday season approaches, we’re more confident than ever in our ability to meet and exceed our customers’ expectations to make this a successful quarter, and we’re excited about the future possibilities of this partnership,” director of fulfillment Joey Kinnevan said in a statement.

Boot Barn’s use of the Packsize system creates right-sized boxes that can fit each order to ship more than 4,000 shipments to customers daily. At the Wichita distribution center, employees scan and load SKUs into the system to ship products out in the right-sized boxes instead of packaging by hand, reducing the likelihood of damage and increasing packaging efficiency even for complex orders.

Net Sales: Boot Barn said net sales increased 12.4 percent to $351.5 million from $312.7 million in the prior-year period.

Consolidated same-store sales increased 2.3 percent, with retail store same-store sales increasing 3.9 percent and e-commerce same store sales decreasing 7 percent.

The increase in net sales was the result of the incremental sales from new stores opened over the past 12 months and the increase in consolidated same store sales, which saw an increase in average unit retail prices, driven in part by inflation.

Conroy said the retailer had “strong” results in its east and north regions, “solid” growth in its south region, and a decline in sales across the west region, which remains the company’s strongest market.

Net Earnings: Net income was $32.1 million, or $1.06 per diluted share, compared to net income of $37.9 million, or $1.25 per diluted share in the prior-year period. Excluding a 3 cents-per-share tax benefit related primarily to income tax accounting for share-based compensation, net income per diluted share was $1.22 in the prior-year period.

Income from operations decreased to $44.2 million, or 12.6 percent of net sales, compared to $50.1 million, or 16 percent of net sales, in the prior-year period, primarily due to higher selling, general and administrative (SG&A) expenses.

CEO’s Take: Boot Barn expects to open 40 new stores for the fiscal year, after opening 10 stores in the quarter and bringing the company’s current count to 321. Approximately nine stores will open in the third quarter and 10 stores will open in the fourth quarter.

In May, the retailer increased its long-term store target from 500 to 900 locations—a plan Conroy says is working so far.

“We’ve opened up a few stores in Delaware, Pennsylvania and New Jersey. Now again, their budget was probably $1.8 million or $2 million per store, depending on the store, and they are running at $3.5 or more million each. So rather than pay back in three years, we’re paying back in, call it, 18 months,” Conroy said. “As we look forward, the downside risk of opening up a store is quite low. We have 321 stores and every single one of them is EBIT positive at the moment. So we’ll continue to open up stores. We’ll open the next 300 stores. They’ll do $3.5 million each.”