Boot Barn Holdings, Inc. (BOOT) Earnings Call Transcript & Summary

Hi, I'm Jay Sole. UBS' retailing, department stores and specialty softlines analyst, and welcome to the UBS Global Consumer and Retail Conference. We are super pleased that Boot Barn is here today, and we're going to do a fireside chat. And representing Boot Barn will be the company's CEO, Jim Conroy. Jim, really grateful that you're here today. Looking forward to the conversation. The plan is I'm going to turn it over to Jim to make a couple of brief remarks, and then we'll do a little Q&A session. [Operator Instructions] But with that, without any further ado, Jim, I going to hand it over to you.

Very good. Well, Jay, thanks again for having us on. Do you hear feedback? I hear feedback. No? Can you hear me?

Yes. All good.

Perfect. Well, I appreciate you having us. And certainly, I want to thank the investors that have dialed in to listen in as well. In terms of introductory remarks, I think the Boot Barn story is now getting out there more and more. With that said, there are still some pieces of it that aren't completely well understood. So I'll touch on just some of the high points and then happy to dive right into Q&A. I'd start with the size of our market. We -- when we went public, we said this is roughly a $20 billion retail opportunity hidden in plain sight but, seemingly, nobody is going after it. And we have really taken the lead in the industry to take on a very fragmented market and become the natural consolidator. I think there is -- our story has been pretty consistent since we went public. We have a very straightforward set of 4 strategies. I'll recount them very briefly, and I'm sure many of the questions will go into them more specifically. But we want to grow same-store sales. We want to build new stores. We're trying to expand our exclusive brands and we're, of course, enhancing our omnichannel capabilities. And if you went back 8 years, you'd see the same set of 4 strategic initiatives, and we're really now just focusing on continuing our execution against all of them. And then maybe a final commentary, some of the things that I think make us unique not only in our market but in retail in general, first, we're a true lifestyle brand. People in our category know the Boot Barn brand. Much like people would think of lululemon in that sort of casual lifestyle. We are one of the few retailers that continues to have white space to build new stores, and I think we can double our current store count. We continue to see positive same-store sales growth in our stores. Of course, that was interrupted a bit by COVID. But if you look at a decade of growth, we're still seeing people come into our stores, and it's still a store's preferred channel. And then maybe the last couple of points, we're unique in the world of specialty retail and our view in that we have very limited fashion or markdown risk. So not only do we rarely have an outsized clearance markdowns that have eroded our merchandise margin but we also rarely run major sales. So the vast majority of our products, particularly in our stores, is sold at full price. So when you kind of put all of those pieces together, right, we don't have a lot of fashion risk, we're growing top line in both channels, we're not -- we haven't put the promotional needle in our arm, and with the ability to continue to open up new stores across the country, it just makes it a great environment to operate in, and I'm happy to have the opportunity to lead the company.

Well, that's great. I mean, Jim, I think you're absolutely right. People are understanding the company's story more and more. I think the growth you're talking about, I still feel like people are surprised really by the growth algorithm, the earnings growth algorithm the company really has. And so if it's possible, I'd love to sort of take a bunch of the points you just mentioned and sort of put some numbers around them, giving people an idea of why you can drive such strong earnings growth over the next few years. And firstly, let's talk about the top line because, just at a high level, first, adding stores, comping in the stores, driving e-commerce growth, in a normalized environment, sort of after the pandemic effects are over and behind us, fortunately, hopefully, that will be soon, what kind of top line growth do you think you can generate on an annual basis?

Well, I mean I guess 2 different answers to that question. The first is, to your point, anchoring back to the earnings algorithm, right, the earnings algorithm is -- assumes low to mid-single-digit same-store sales growth and 10% new stores and a bit of an increase in our penetration of exclusive brands, and that drives 20% growth in EPS. So the reason we always try to remind the investor is low to mid-single-digit comps for us, certainly prior to COVID, has been very achievable, right? For the last decade, leading into COVID, we averaged about 8% comps for 40 quarters. Only 3 of those quarters were negative. So while I don't want to promise a plus 8% forever and going forward, we do feel pretty -- we're on pretty solid ground to have a low to mid-single-digit comp for the foreseeable future, and we have outperformed that. We've outperformed that for several years prior to the pandemic. And even in the 3 quarters leading up to the pandemic, we were solidly above that. So I would say, a mid-single-digit comp is something that is achievable going forward from what we can tell. The one caveat I would throw in there, of course, as we cycle massively negative numbers in the LOI period during COVID, we're going to get an artificial bump that will be higher than mid-single digit. And I'm just looking -- I think your question -- the spirit of your question was, when we get to some kind of new normal, what's it look like, and I think that's how we'd respond.

Got it. I understand. And that was the spirit of the question. I guess, Jim, just for people who are watching who might not be super familiar with Boot Barn, when you say comp, do you mean stores plus e-commerce? Or are you talking about just stores and that e-commerce is separate?

So store plus e-commerce. And from a same-store sales perspective, our e-commerce channel does tend to outpace the growth of our stores. But notably, for several quarters, again, prior to the COVID pandemic, we had positive same-store sales growth in our stores of solid mid-single-digit comps for several quarters prior to COVID's emergence last year. That said, our e-commerce business tends to grow double digits and helps the consolidated comp a little bit, a point or so. But that's how we think about the earnings algorithm is, a consolidated number.

Got it. And then can we talk about the drivers of the comp? Because there's transactions, there's ticket. You mentioned that you're the natural consolidator of the space. That sort of implies there's some market share opportunity. Do you see that bringing new customers into Boot Barn, into the company, is that the main driver of the comp? Or are there other things that we should be thinking about?

Well, we actually have a number of different levers that help us achieve top line growth, to be honest. So the biggest one, and this is certainly prior to the pandemic but it was consistent for 6 or 8 quarters in a row, was we were adding net new customers to the brand on a same-store basis. So in rough numbers, when you looked at our comp in any given quarter, and it varied a bit from quarter-to-quarter, roughly half of the same-store sales increase in the stores was coming from adding customers to the brand, which is as healthy a growth that you could hope for, right? We weren't promoting the business to drive artificial top line growth. We were literally adding to our customer count and adding to our customer traffic coming into a brick-and-mortar store. That's the first piece. The second piece, and this does fly in the face of a conventional wisdom or perhaps what's happening in retailing in general, but we found that we could actually pull back on the few sales and promotional periods that we had in our stores. And by doing so, we actually saw growth in AUR because we were doing less promotions. Now we had started with a fairly low promotional profile, and we just made it even lower, so that has helped a bit from a growth in our basket size. And then finally, maybe just to kind of a call-out to the folks in the field, in our most recent quarter that we're on public record for anyway, and the third quarter, a holiday quarter, we didn't see the growth in customer count. And we didn't necessarily expect to because we're still sort of in the throes of the pandemic, but we were still able to grow same-store sales in the stores. And we did that with transactions on an average store basis being down slightly, and almost all of the growth came from building the basket with higher units per transaction. So that's adding a belt to a denim sale, adding boot trees to a Boot Sale or a Boot Care to a Boot Sale and really a lot of credit to the field team for finding a way to get positive comp despite the fact that we weren't able to deliver more customers in that particular quarter, which had sort of become the norm, at least prior to COVID.

Got it. So that's really helpful on comp. The other piece is the store growth. And you mentioned 10% store growth is a big number. Maybe people don't quite realize that you're not at a 1,000 stores already, you're not over stored. It's still relatively a small chain in the grand scheme of things. And there's Tractor Supply, who some people would say are in a relatively similar market, has like 1,800, 1,900 stores. Can you just talk about your confidence in being able to get from the store number you're at to sort of like your long term goals?

Sure, sure. The confidence is quite high and maybe paradoxically is increasing despite what's happening with COVID across the country. A little bit of context, when we first went public, we didn't want to just put out a number articulated in our S-1 that we couldn't defend. So we went and studied market-by-market and said, based on the parameters in each of these states, total population, blue-collar employment, propensity to go to a rodeo or listen to country music, how many stores could we put in each state. We add that all up, and I think the first number we got to was 450 total stores across the country. We then updated it a couple of years later and said we can get to 500 stores. And we're about half of that now, slightly more than half of that now. So then we look forward and say, well, what has changed over the last couple of years? And what's happened in general retail and what's happened at Boot Barn are frankly quite different. I think there's been more of a shift to online selling and an acceleration of an underlying trend in the general retail population. That said at Boot Barn, we haven't seen that shift nearly as prevalent as in the rest of the retail world. And I think there's a couple of reasons for that. We continue to open new stores. We're continuing to see same-store sales growth in our brick-and-mortar stores. And I think when we think about the confidence of can we get to 500 stores or more, 2 or 3 factors have, I guess, further emboldened us in that number. Number one, we were opening up brand-new stores in essentially brand-new markets: Ohio, Pennsylvania, Virginia, that were in the pipeline prior to COVID emerging about 12 months ago, and then they opened in April or May of last year. And now we've seen them for 10 or 11 months. And what we've been pretty vociferous about is saying, these are brand-new stores and brand-new markets where the brand name isn't quite as well-known as it might be in California or Texas. And as an East Coaster myself, these aren't states that you would necessarily think would be Western in their aesthetic. And despite all of that, these stores opening during COVID are -- seem to be on a path to doing better than a 3-year payback. And in some cases, significantly better than a 3-year payback. So as we see -- strength in new markets would be one. As we see less cannibalization, as we add new stores to more mature markets, so as we open stores in Texas and open stores in California, we model a certain amount of cannibalization from adjacent stores. And almost without fail, the amount of cannibalization that we're seeing is less than what we modeled. And maybe the third factor I'd throw in there would be our customer has consistently proven to be -- to vote in favor of stores. During our holiday period, while our e-commerce business grew quite nicely, we still saw growth in stores, in brick-and-mortar, at a time when people were concerned about shopping in crowded spaces and crowded stores. And it's never more crowded than it is during the holidays in any retail store, including Boot Barn. Yet, despite that, we still saw growth versus the prior year. So when you put all that together, again, perhaps bucking the trend in the rest of retail, we are very bullish about our growth in new stores. And I guess, throwing bucking the trend and bullish into one answer as a Western retailer is -- pun was unintended, but we'll take it.

Got it. Right. And that's clear. I mean I think that -- I want to ask you about categories a little bit because, to me, one thing that sort of underpins everything and is that differentiating factor is boots. I mean the name of the company is Boot Barn. Can you talk about your confidence in being able to be the destination for boots for that consumer, to really have that differentiated assortment, really know the retailer is going to be able to compete with you on just to make sure that it continues to bring that customer coming back into the store, which gives you the opportunity to sell private label, to sell more stuff and bring new people in as they see that you're differentiated in that area?

Yes. So I think there's 2 things -- or 3 things perhaps, that make us unique there. One, it's the nature of the product itself. I mean when you're buying a cowboy boot particularly, it's a pretty complicated purchase. It's a pretty expensive purchase also, right? And the fit is much different than buying a pair of tennis shoes or sneakers. And the nature of the product itself being hard to fit, having multiple styles and skins that the product is made out of, lends itself to an in-store purchase. I think second, we deliver a very broad assortment. We're in stock in -- across sizes. So part of our authority is the fact that when you walk in, if you're looking for a size 11 exotic skin, rubber heel boot, you're going to find it in the store, you're not going to go out empty-handed. I think the third piece is we have built the brand up so much that we are known as the authoritative source for Western and work product. And if you want to come in looking for expertise on what type of boot to buy, how the different brands will fit, et cetera, you'll feel comfortable coming and talking to our sales associates. They're extremely well trained. They're educated on the product. We invest a fair amount of time and money into their education about the nuances of all the products. And you're only going to buy a pair of boots once or twice a year, and our core customer would, and you really want that broader selection and authoritative sales associate to help you find exactly what you're looking for.

Yes. So it's interesting that you sell boots that some of them are quite expensive. Can you just talk about how you positioned the Boot Barn brand over the last couple of years to be able to be a destination of a place where people will come in, expecting to pay a premium price for a premium product. I think people might not realize, like, was it a discount retailer? Is it sort of like -- what's the price -- do you know what I mean? It's like a certain color consumer and they're going to pay a high price? How have you been able to do that?

The easiest way to describe the price positioning of Boot Barn is the sort of familiar retail construct of good, better, best. And we are squarely at better. So there are plenty of places where you can go and buy a cowboy boot, it's a different product, it's not the same product at a lower price, but you could buy a cowboy boot that's cheaper. There is also plenty of places that will sell cowboy boots at $1,000 and more, and they're quite beautiful, and they're very dressy typically. And we are kind of right in the middle of those 2 extremes. Our average price point, depending on whether it's male or female, is between $175 and $200. We are fairly priced in the industry where we're not necessarily the lowest price provider but where we give, I think, a very good value. We rarely, if ever, promote the product in any significant way. But I think our customers have come to learn that we sell a very high-quality product at a fair price, and we get a tremendous amount of repeat traffic and customers, particularly in the stores, based on that reputation. So that's the way I would think about it. We're between $175 and $200 on the Western boot side. And I think that's a big enough purchase that people want to come to see the product in person typically, but it also doesn't kind of break the bank for them and enables them to, frankly, buy that product and, oftentimes, wear it frequently enough that they need to replace it within a year, which is very different than I think most people outside of our industry realize it, right? I've got a pair boots that I can wear for 10 years because I'm not working outside in them or riding a horse in them, et cetera. But once you wear them with a functional purpose in mind, you wear through them pretty quickly, and you come back and get a different pair, typically, but you get another pair from us, and that's what drives our sort of ongoing growth in same-store sales year-over-year. It's just taking care of customers and having them return.

Got it. Jim, you've talked in the past about how the marketing has changed from when you first got to Boot Barn until now where, before, maybe it was advertising and promotions and price, and now it's very aspirational. And I think that creates an image that probably helps sell a better product. At this conference, we hear a lot of brands talking about wanting to win with the winners and say, "We want to go somewhere that can elevate our brands." As you see the brand -- as you continue to elevate the Boot Barn brand and make it become more aspirational and, obviously, continue to sell high-quality products with service in the store, do you see brands coming to you and say, hey, we want to partner. We want to be a higher-priced brand. And we can -- we think we can do it in your store. We think we can show up, what, some of our higher-priced goods? Is there that kind of opportunity to sort of say, hey, as Boot Barn elevates, that you're going to track the opportunity to bring in brands and other categories that are going to elevate you even further?

Potentially. The honest answer, though, is we have the ability to sell essentially every brand in the industry today, right? We -- it's not like we were a deep discounter and then elevated ourselves such that some of the bigger brands now felt comfortable selling to us. So we've always really had the ability to carry virtually every brand in the industry. You're right to call out the change, though, in marketing. If I went back 8 years or so, when I started -- by the way, the company was extremely successful before I got here. I often want to remind people of that. But it was different. We were, "Buy jeans at a price this weekend," or "We have boots at $149 for these brands for this week," and we would put out our marketing like catalogs, direct mail catalogs, that really focus on product price and promotion. And a few years ago, we just took a position that we want to put the Boot Barn brand and the Boot Barn experience front and center. And it was a transformation, right? Our -- internally and externally, but our direct mail catalogs went from a product guide to sort of a coffee table book or magazine, and it was really trying to -- we had such great imagery in this industry to showcase Western landscapes and horseback riding and the people that make up this lifestyle. So now if you were to get one of our direct mail pieces or follow us on social, you would see an aesthetic that is intended to draw new customers into the brand, and it's been able to do that. But notably, we're very cautious to not shoot so high or get so far afield from our current core customer that we lose the base and the foundation of our business also. So I would -- that's how I would summarize it. We've gone from trying to sell a pair of boots and a pair of jeans to trying to drive traffic to the brand. And candidly, it's been a big part of our success for the last 4 years. It took some courage and some grit to take that leap of faith, but it's seemingly working for us.

It does. So maybe I want to tie that into private label and then also into gross margin. Because we talked a little about sales, I want to talk about gross margin a little bit. Last full fiscal year, company's gross margin was 37% and change, I think -- or sorry, 32% and change, 32.7%. This year, consensus thinks it will be a little bit lower. Obviously, pandemic, so it's a strange year. But coming out of it, Jim, what kind of gross margin targets do you have? And what are the drivers to get there?

So of course, the first driver is above the gross margin line, and it's the merchandise margin line, and it incorporates a bit of your question around exclusive brands. We have seen just really nice performance at the merchandise margin line. We have eliminated some of the limited promotions that we had done historically. We have gotten better at moving through clearance without discounting it deeply. And frankly, we have less clearance than we've had historically. And we've been expanding exclusive brands that -- and all of those have driven higher merchandise margin. And that's kind of the biggest controllable factors that we have that ultimately lead into gross margin. The next one, of course, just the way we report on gross margin, familiar to most -- or typical of most retailers, is we build in buying an occupancy between merchandise margin and gross margin. And by virtue of the fact that we've been growing same-store sales more beyond our leverage point, we've gotten leverage on occupancy and leverage on the fixed cost buying an occupancy. So that, if we can continue that going forward, with merchandise margin expansion through the 2 or 3 things I mentioned, coupled with same-store sales exceeding the leverage point, we believe we'll continue to be able to build our gross margin rate. And we saw that even in the last quarter. I mean most of the fiscal '21 erosion in gross margin rate happened in the first quarter, most of it. And I think now if you look at it as a run rate, it's kind of a better story, a margin expansion story.

Definitely. So maybe on that rent piece, there's a lot of talk in the industry about a lot of -- occupancy rates have fallen for malls. Overall, the urban centers seems like there's opportunities for companies to take advantage of favorable lease terms, and it's really just unprecedented, if you look back over 10 or 20 years. But Jim, Boot Barn doesn't have a lot of stores in malls. There's not a lot of stores in urban centers. Is there an opportunity for you to sort of negotiate more favorable lease terms just because of what's going on in the environment?

I think there's some opportunity. You asked the question, I think, exactly right. It's a little bit less so than many other retailers calling out who have the -- already have stores in malls and maybe are renewing leases at favorable terms because mall traffic is down and occupancy rates are down, et cetera. For us, we're seeing some decent deals. We're also seeing better locations at the same price, and that has been really the path we've taken. So one of the questions has been, well, how have you been able to get new stores in new markets achieve run rate new store sales higher than what you would have expected, particularly during a pandemic? And part of the answer to that, in our view, is that our total occupancy in some of these new stores might not have saved on dollar, but we got a better, more high-traffic, high-profile location and have been able to build customer traffic faster than we otherwise would have. So it's sort of an intangible benefit. But you're right. I mean, even outside of malls, there's more real estate becoming available. We're watching that closely. We are looking opportunistically to find great stores at a great value. But all things equal, we're going to look for the best real estate we can get and not necessarily the cheapest deal that we can get.

Understood. There's a lot of talk in retail, obviously, about the dynamics between the growth of e-commerce and the growth in stores and how a lot of that has been margin dilutive for brands. Essentially, they're running 2 businesses when they only need one, they sort of need to find a balance between stores and online. Obviously, Boot Barn hasn't had that issue. But can you talk to us about the relative profitability of e-commerce, if it grows faster than your store business? I mean is it going to be dilutive? What can you tell us about that?

Sure. Well, you hit on a few of the salient points there. One, the shift for us is just much less prevalent. In the most recent quarter, we shifted e-commerce by 1.3 points -- 130 basis points of penetration versus the third quarter of last year. And that was in a year where while same-store sales in our brick-and-mortar channel did grow, it didn't grow quite as strongly as it had been prior to COVID and we had slowed our new store growth. So the shift was just more than a point during a pandemic. And I think if you roll forward and say, well, if you get back to 10% new units, and you can get some decent same-store sales growth in your retail stores, the shift will be maybe even less than that as we roll forward. That said, even if there was a shift, it just worries us less and less and worries us much less, I think, than a lot of other retailers. I don't think we're on record officially for calling out the delta in operating margin between the 2 channels. With that said, though, if you went back and looked at the last several quarters and try to normalize some of the noise around COVID, we have really been growing the profitability of our EBIT channel, right, so -- of our e-commerce channel. So we have called out same-store sales growth on the e-commerce side of 16-ish percent, and yet EBIT grows 100%. And if you do that long enough, you can erode -- and we have seen some really nice improvement in shrinking the delta between stores and e-commerce. I would say to the point where at least in every quarter other than holiday, we're not quite but almost agnostic as to where the sale comes from. So again, not trying to put a specific number on it, but it's getting closer and closer. And then if you say, all right, well, the business isn't shifting that much and even if it does shift, they're not that worried about it, it's -- for us, it's just not an issue. I mean it's just not an issue. We have -- there are plenty of other things that are much bigger at play, hopefully, on the upside to margin. But even on the downside, that would subsume any rate change based on shift.

Understood. Another -- well, let me ask you about another issue that's topical right now amongst investors, and that's port congestion and also shipping and freight charges. So maybe let's deal with them in pieces. First of all, port congestion, I know it's a near-term thing. I mean, presumably, it's going to be over in 6 months from now. But like, is that something that you feel like can have a negative impact on your gross margins in the near term?

So no, I don't think so. If it were to have an impact, and frankly, it would be mostly behind us already, it would be on availability of product and top line growth. If we're -- specifically, on the congestion piece, we called out coming out of our third quarter that -- and we're very pleased with the business, and we certainly don't want to lead people to believe that we would have been a plus-10% comp in the quarter but for this, but we probably had some supply chain challenges. We didn't have quite as much inventory as we had hoped. Part of that was throughout the entire supply chain, and part of that was port congestion. And we can almost literally see some of the ships off the coast here in California, in Long Beach, hoping that the product would clear and get through our system. So that is -- we've made some really nice improvements. The merchants and the inventory management folks in the planning side have been hustling like crazy to try to get that product through. And we're not -- I wouldn't say our supply chain is at full strength, but it's better than it was in the third quarter, and there's a path to it getting to kind of full run rate within the next month or so. So it's something that's been a nuisance for us, and it's challenged us to really hustle, but it hasn't had a significant detrimental effect on the business. On the freight side, we are a little bit concerned about freight rates like everybody. We actually had good news in freight in the most recent quarter. And one of the pieces of it, not all of it, one of the pieces of it was we started to use our stores as a way to distribute product from our e-commerce channel. So about 20% of bootbarn.com's orders are now being picked up in stores. And some of that, admittedly, is being shipped to the store, so it's still being -- still using UPS or one of the other carriers. But more and more, it's a product that's already in the store. So we're saving on freight. We're increasing our speed and customer service to the customer. And well, we're still going to watch free, and we're still concerned about it going forward, I think, like everybody else. We've been able to find some ways to offset it so much so that it's actually a modest good guy in the most recent quarter.

Got it. All right. So we have a few minutes left. I just want to touch on a couple more things. One, we talked about sales. We talked about gross margin. I just want to talk about SG&A as a percentage of sales a little bit because, obviously, there's a nice gross margin story happening, specifically last quarter, especially. As you think about your SG&A as a percent of sales over the long term, what kind of number are you managing to? What's your goal?

Well, I would answer it this way and say, we are a pretty lean company, we're certainly lean at the corporate office, our store support center. And with additions to the overhead staff, with additions and things like health insurance, with additions out in the field with pay wage increases, et cetera, despite all of that, we -- our leverage point is still a plus 1 or a plus 2 comp. So our expectation is if we can comp -- and this is a consolidated common number -- if we can comp better than 2, we'll get leverage on SG&A going forward. Part of that is to try to break through that magical 10% operating margin number. We had it in our sights right prior to COVID, and it's now back in our sights. But I think if we can comp a bit next year, we'll cross that double-digit threshold. But in terms of SG&A, I mean the only big things that are out there that a lot of people are worried about, that may hit our radar screen, but I just don't think they'll be that impactful to us, we're opening up new stores in new markets. And a lot of people have asked, is there outsized marketing for those new stores? The answer to that question is no. So we're not overspending in marketing that will deleverage SG&A. There's, of course, a lot of discussion around minimum wage and what's the impact on retailers, et cetera. I'm happy to say we're significantly above the federal current -- the current federal minimum wage rate today. We're not quite at $15 for our sales associates in base wages. But when you take their base wage plus they all have an opportunity to earn a bonus on sales growth, they have an opportunity to earn SPIFs on selling certain brands, most of them are getting close to -- and this is the entry-level sales associate -- most of them are pretty darn close to that $15 wage rate anyway. So even if that were to happen, we have to work it into our P&L, but it wouldn't have a significant detrimental impact on our profitability. And beyond that, we're just going to continue to run the company prudently, manage our expenses wisely and look for top line growth. And hopefully, we'll get leverage on our fixed costs.

Got it. All right. So maybe, Jim, last question, just talking about cash uses. The company does generate a lot of cash. Opening stores is a priority. There's other options to debt paydown or buy back shares or dividend, whatever. Can you just talk about how you think about the different options and what you think the most appropriate and prudent thing to do is with the free cash?

Sure. For the last few years, we really only had 2 practical choices, right? Pay down debt or open new stores. And I think even now, for the foreseeable future, we've made some really significant progress on paying down debt, right? 4 or 5 years ago, our leverage ratio was 4-ish, now it's 1-ish and on its way down below that. So we'll continue to -- our next marginal dollar of cash flow will go to, first, building new stores; the modest CapEx needs that the company has, which are sort of, I think, widely understood by the market, nothing on the horizon in an outsized way; and then with the excess cash flow beyond that, we'll continue to pay down our debt. And at some point, we might eradicate the term loan. That's not in the next couple of quarters, but it's in our future, I think.

Got it. All right. So maybe the very last one, M&A. The company, maybe people don't realize, has been involved in M&A in the past. Would you consider M&A in the future?

We would. There's fewer and fewer companies that are good candidates for us, to be honest, right? 10 years ago, there was 5 or 6 chains in the industry. I only put chains in air quotes because, for us, a chain may have been 25 stores. I just want to make sure people don't think it was 200 stores. And of those 5 or 6 companies, 4 of them are now under Boot Barn, right? So we've made 3 or 4 acquisitions in quick succession over a 2- or 3-year period and consolidating them all under the Boot Barn brand. That has left a pretty significant chain out of Texas called Cavender's. It has about 80 stores, right? We have 270-ish stores. Cavender's a very formidable competitor, a great company, but a lot of overlapping markets to us. They're very heavy in Texas. We enter Texas, expanded in Texas and are now kind of right on top of them. In many ways, they're a family company. I'm not sure they're a willing seller. And the only other chain of significance that's specific to our industry is a Canadian chain out of Calgary. Who knows, maybe someday will go up into Canada. I don't think that's in the next couple of quarters. We have plenty of room for organic growth. So when you take those 2 chains away, there's lots of single-store operators or guys that have maybe 1 or 2 stores that we're in constant conversation with. So when we look at a new market that we're trying to go into, we look at the -- sort of where the customer base is and then say, "We want to put a store in these 2 or 3 quadrants around the city center." And then sometimes we say, "Well, hey, there's a store already. It's 11,000 square feet right on the corner of Main and Main, and maybe we should just acquire that particular player rather than build a de novo store." And we've tucked in a number of different stores over the last few years. And that certainly is still an opportunity for us. I would expect, though, that the vast majority of our growth in store count for the next year or 2 is going to be building brand-new stores across the country.

Got it. Okay. Well, you know what, it's 1:45 Eastern. So that's the end of our time. So why don't we stop there? Jim, this has been great. Thank you so much for taking the time, and thank you for your answers, really enjoyed it. And I also want to thank everybody who logged in and listened to the conversation. So we're going to stop here, and I hope everybody has a great rest of the day, and see you next time.

Very good. Thanks so much, Jay. Take care.