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

Good day, everyone, and welcome to the Boot Barn Holdings Fourth Quarter 2023 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, Vice President of Financial Planning. Please go ahead, sir.

Thank you. Good afternoon, everyone. Thank you for joining us today to discuss Boot Barn's fourth quarter and fiscal 2023 earnings results. With me on today's call are Jim Conroy, President and Chief Executive Officer; Greg Hackman, Executive Vice President and Chief Operating 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 in this presentation 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 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 fourth quarter and fiscal 2023 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 Jim Conroy, Boot Barn's President and Chief Executive Officer. Jim?

Thank you, Mark, and good afternoon. Thank you, everyone, for joining us. On this call, I will review our fiscal '23 and fourth quarter results, discuss the progress we have made across each of our 4 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. Fiscal '23 was a solid year for Boot Barn as we achieved record sales, opened 45 new stores and continue to expand product margin. I am proud of the entire Boot Barn team for driving these results and for holding on to the outsized gains from the prior year. Fiscal '23 total sales grew 11.4% on top of 67% growth in the prior year, driven primarily by strong sales from new stores opened over the past 12 months. Consolidated same-store sales were flat to the prior year, which was comprised of 1.8% retail store same-store sales growth and a 10% decline online. The stores comp is notable as we cycled a 57% comp growth in the stores last year. Similarly, while our online business declined, that business is cycling 2 very strong years of 39% and 24% comp growth in fiscal '22 and fiscal '21, respectively. Given the extraordinary revenue increase last year, we are quite pleased with these results. In addition to the sales performance, we were able to grow our product margin for the year by 30 basis points, primarily through growth in our exclusive brand penetration. This margin expansion was offset by 100 basis points of freight headwinds, resulting in a net 70 basis point reduction in merchandise margin. To put our sales and margin results in perspective, over the past 5 years, Boot Barn revenue has more than doubled, adding nearly $1 billion in sales and merchandise margin has expanded approximately 500 basis points. Turning to our fourth quarter results. Total sales continued to show solid growth, driven by sales from new stores. However, same-store sales declined 5.5% on a consolidated basis as we cycled same-store sales growth in the prior 2 years of 33% and 27%. From a margin perspective, we saw product margin expansion of 30 basis points in the quarter. It is a testament to the strength of the Boot Barn brand, where we can continue to expand our selling margin despite a decline in same-store sales. While our full year results fell short of our original expectations, overall, I am pleased that we've been able to continue to grow the business on top of a record-setting year. I will now spend some time highlighting the recent progress we have made across each of our 4 strategic initiatives. Let's begin with expanding our store base. [Our net] growth engine continues to significantly outperform our expectations. While we've historically targeted 10% new store openings, we were able to accelerate the growth to 15% for fiscal '23. We believe the 45 stores opened in the past 12 months will continue to generate average unit volumes of $3.5 million and pay back in less than 18 months. In the fourth quarter, we opened 12 new stores, which was our sixth consecutive quarter of double-digit new unit openings. These recent openings include our first stores in the states of New York and Maryland, further expanding our presence into untapped markets. We continue to be encouraged both by the new store performance in new markets and the lack of significant cannibalization as new stores are added to existing markets. The new store performance helped with a strong new store pipeline, further bolsters our confidence in the ability to expand to 900 more stores across the United States over the next several years. Moving to our second initiative, driving same-store sales growth. Fourth quarter consolidated same-store sales declined 5.5% with retail store same-store sales declining 3.3% and e-commerce comp sales declining 18.4%. From a merchandise department perspective, the more functional product lines performed better than the more discretionary categories. These include men's western boots and men's apparel, which performed better than the chain average and men's work boots and work apparel, which were in line with chain average. Ladies boots and ladies apparel declined 11% and 13%, respectively, as both departments cycled a 2-year stack of over 80%. From a marketing perspective, the brand continues to resonate across the country. The recent customer research we conducted was able to confirm that our outsized sales gains were due in part to the influx of many new customers, both from Western and work competitors and from retailers outside our industry. As we look forward, we will continue to prospect for new customers through broadcast media channels while nurturing our legacy customer base with tailored print and direct mail communication. We are pleased with the continued expansion we have seen in our customer base with 22% year-over-year growth in our B Rewarded loyalty members, ending the year at 7.1 million active members. Drilling down into our comp stores business from a geographic standpoint, we saw a slight decline in our East and North regions. The West and South regions both experienced a mid-single-digit decline. As we look at our store KPIs, a decline in transactions per store during the quarter was partially offset by growth in average transaction amount. Our January stores business was positive on a same-store sales basis, which then turned negative in February and more negative in March. While top line performance in the stores was softer than we expected it to be at the outset of the quarter, we are relatively pleased with this result as we're recycling a 2-year stack comp of approximately 60%. From an operational perspective, the field organization continues to deliver exceptional customer experience. With all the omnichannel offerings we currently have in place, our stores team has been tasked with balancing many operational responsibilities in addition to delivering high-quality customer service. The team has not only risen to this challenge but has also managed to sustain our elevated sales per store. I do want to express my appreciation to the entire field team for their execution and their ability to adapt to the changing needs of the business. Moving to our third initiative, strengthening our omnichannel leadership. In the fourth quarter, our e-commerce same-store sales declined 18.4%, in line with the performance we saw in this channel during the third fiscal quarter. We believe these declines are a result of competitors having a stronger in-stock position compared to last year and expect this softness will be transitory. For the past few years, we have successfully rolled out several omnichannel capabilities, including ship to store, ship from store, cross-channel returns and buy online pick up in store. Doing so has enabled us to increase the customer service options online while simultaneously expanding the breadth of the in-store assortment. Today, approximately 2/3 of our online sales are touched in some way by the stores. We believe that leveraging our nationwide store presence will create a seamless integration of our 2 selling channels and provide us with a sustainable competitive advantage in our industry. In addition to the omnichannel capabilities that have been created, we are continuing to make progress in a number of areas. First, we continue to see strong growth in exclusive brand penetration online as we access the broader assortment that resides in all the stores across the country. With the incremental margin provided by our exclusive brands, we expect to further increase the profitability of our online sales in the coming years. Second, during fiscal '23, we rolled out a Boot Barn mobile app. This app creates a more convenient shopping experience for our customers, offers a mobile-friendly option for purchasing and serves as an additional tool to drive in-store traffic. It enables our online customers to shop their local store, learn about events and concerts in their market and stream country music directly from the app. Our digital team did an incredible job with the development, and we are very pleased with the final product. Lastly, I am quite excited about a new project underway called Bandit. That utilizes artificial intelligence and machine learning to enhance the customer shopping experience. All Boot Barn stores are already equipped with touchscreen devices that guide customers through their purchase decisions by narrowing the assortment based on a series of filters and preferences. Our digital team has added to this capability tremendously. First, they have integrated machine learning to develop a recommendation engine based on market basket analysis. Second, they have created a fully integrated connection with Chat GPT to provide a customer with a conversational interactive experience. For example, if a customer is shopping for a pair of women's western boots, they will now be able to ask Bandit for a recommended outfit that would pair well with their selection. To wear to a country music concert and that recommendation will be rendered with a conversational tone adding qualitative reasons why these items would look good together. Additionally, we have harnessed the same capability in the handheld devices utilized by our store associates when they are assisting customers. This new technology will empower our team greatly by providing them with a deep level of product expertise and an ability to pair items together regardless of how much product knowledge they have or experience they have working at Boot Barn. While there has certainly been a tremendous amount of recent discussion around the use of AI, we are thrilled to be on the cutting edge, having already rolled out both in customer-facing and in employee-facing applications to all of our stores. I'm looking forward to the potential this new offering has to enhance the customer experience and drive incremental sales. I do want to express my gratitude to the digital team, specifically to Justin for developing this incredible tool and enabling us to be first to market within our industry and integrating AI into the customer experience. Now to our fourth strategic initiative, exclusive brands. During the fourth quarter, our exclusive brand penetration increased 770 basis points to 37.3%. For the full year, our exclusive brands were 34% of sales and surpassed $550 million. For context, exclusive brand sales have increased more than 10 percentage points in penetration over the last 2 years. Consistent with prior quarters, 3 of the top 5 selling brands were Cody James, Cheyenne and Idyllwind. Our exclusive brands not only provide us with competitive differentiation, but they are also financially accretive to the business by approximately 1,000 basis points of margin. Turning to current business. We are halfway through our first fiscal quarter and quarter-to-date same-store sales declined 5.8% compared to approximately 13.4% growth in the comparable prior year period. The consolidated 5.8% decline is driven by a 15.2% decrease in e-commerce sales and 4.3% decline in retail store same-store sales. Given that we are up against the toughest compares in the year ago period, it is encouraging to see a sequential improvement from March into our first quarter signaling a healthier tone in the business. I'd like to now turn the call over to Jim Watkins.

Thank you, Jim. In the fourth quarter, net sales increased 11% to $426 million. As Jim mentioned, our sales performance benefited from new stores opened over the past 12 months and the sales contribution from the 53rd week, partially offset by a same-store sales decline of 5.5%. Gross profit increased 5% to $156 million or 36.6% of sales compared to gross profit of $149 million or 38.8% of sales in the prior year period. The 220 basis point decrease in gross profit rate resulted from 120 basis point decline in merchandise margin rate and 100 basis points -- and 100 basis points of deleverage in buying, occupancy and distribution center costs. The decline in merchandise margin rate was driven by 140 basis point headwind from higher freight expense, partially offset by 30 basis points of product margin expansion resulting from growth in exclusive brand penetration. Lower-than-expected freight expense was the primary driver of the beat to guidance on the merchandise margin line. As sales slowed during the quarter, we sold fewer high freight inventory items through the P&L compared to our expectations, resulting in lower freight expense. Looking forward, we expect freight expense to be a benefit to fiscal year 2024's merchandise margin of approximately 100 basis points, recapturing the 100 basis point headwind from fiscal '23. Selling, general and administrative expenses for the quarter were $93 million or 21.9% of sales compared to $86 million or 22.6% of sales in the prior year period. We leveraged SG&A expense primarily as a result of lower incentive-based compensation, marketing expenses and leverage from the 14th week. Income from operations was $63 million or 14.7% of sales in the quarter compared to $62 million or 16.3% of sales in the prior year period. Net income was $46 million or $1.53 per diluted share compared to $45 million or $1.47 per diluted share in the prior year period and $0.82 per diluted share 2 years ago. Turning to the balance sheet. On a consolidated basis, inventory increased 24% over the prior year period to $589 million. This increase was primarily driven by new store inventory, exclusive brand growth and inflationary increases from our vendors. Average comp store inventory increased approximately 8% over the prior year period. On a 3-year stack basis, our retail store same-store sales growth of 56% has outpaced our 3-year stack average comp store inventory growth of 35%. We continue to be pleased with the content and quantity of our current inventory levels. We finished the quarter with $18 million in cash and $66 million drawn on our $250 million revolving line of credit. Turning to our outlook for fiscal '24. The supplemental financial presentation we released today lays out the low and high end of our guidance ranges for both the full year and first quarter. I will then be speaking to the high end of the range for both periods in my following remarks. For the year, we expect total sales at the high end of our guidance range to be $1.7 billion, representing growth of 4% over fiscal '23, which, as a reminder, was a 53-week year. We expect same-store sales to decline 4.5% with a retail store same-store sales decline of 5.2% and e-commerce same-store sales growth of 1%. We expect gross profit to be $630 million or approximately 36.5% of sales. Gross profit reflects an estimated 150 basis point increase in merchandise margin, which includes a 100 basis point improvement from freight expense. We expect to grow exclusive brand penetration by 400 basis points. We also anticipate 180 basis points of de-leverage in buying, occupancy and distribution center costs. This de-leverage is primarily the result of negative same-store sales, higher occupancy from new stores and the cost of the new Kansas City distribution center. I'd like to provide you with some color around leverage points. On a go-forward basis, we expect to leverage buying occupancy and distribution center costs with a 4% consolidated same-store sales growth. However, as a result of the cost of our new Kansas City distribution center, the annualization of the step-up in new unit growth from 10% to 15%, store remodels in fiscal '24 and the benefit of the 53rd week in fiscal '23, the same-store sales required to leverage buying, occupancy and distribution center costs in the current fiscal year is expected to be 14%. When adjusting for these transitory items, we expect to return to a more normalized leverage point of 4% in fiscal '25. Our leverage point in fiscal '24 on SG&A is a consolidated 2.5% comp. Our income from operations is expected to be $209.9 million or 12.2% of sales. We expect net income for fiscal '24 to be $153 million and earnings per diluted share to be $5. We also expect our interest expense to be $4.3 million and capital expenditures to be $95 million. For the year, we expect our effective tax rate to be 25.6%. We plan to grow new units by 15%, adding 52 new stores during the year. We anticipate opening 13 new stores during each quarter of the year. As we look to the first quarter, we expect total sales at the high end of our guidance range to be $364 million. We expect the same-store sales decline of 7% with retail store same-store sales declining 6% and e-commerce same-store sales declining 15%. We expect the gross profit to be $131.1 million or approximately 36% of sales. Gross profit reflects an estimated 80 basis point increase in merchandise margin, which assumes flat freight expense year-over-year. We anticipate 250 basis points of de-leverage in buying, occupancy and distribution center costs, primarily relating from -- resulting from negative same-store sales, higher occupancy from new stores and the cost of the new Kansas City distribution center. Our income from operations is expected to be $36.2 million or 9.9% of sales. We expect earnings per diluted share to be $0.85. Now I'd like to turn the call back to Jim for some closing remarks.

Thank you, Jim. We are pleased with our fiscal '23 results and believe we are well positioned to continue our growth. During fiscal '23, we accelerated new store openings with the addition of 45 new stores across the country, through product margin for the seventh consecutive year and expanded the penetration of exclusive brands by a record 570 basis points. With new stores continuing to well exceed our financial targets and our growing store footprint, providing even greater integration with our digital channel, we are confident the business is on course to deliver profitable market share gains and increased shareholder value. I'm very proud of the entire team across the country, I want to thank you all for your continued hard work and execution. I also would like to take a brief moment to publicly express my gratitude to Greg Hackman, who will be retiring this summer. Greg has had a significant impact on the growth of the company and on the personal development of [countless] executives. Thank you, Greg, for all that you have done for Boot Barn, for your team and for me personally. Now I would like to open the call to take your questions. [Shamali]?

[Operator Instructions] Our first question comes from the line of Matthew Boss with JPMorgan.

Great. So maybe, Jim, as we think about FY '24 comps, and I think, guided down 5.5% at the midpoint. Two questions. So can you speak to trends that you're seeing today across your existing legacy customers versus new customers that you've acquired, just the general trend across both? And then as we think about the guide in terms of the first quarter of '24 relative to the back half, if you could just help us bottoms up build same-store sales as the year progresses 1Q relative to assumptions baked into the back half? I think that would really help.

Sure, I'll take the first piece of it. It's hard to split out the comp between new and legacy customers. I wouldn't read much into a slightly negative comp after we cycled last year's 53.7%, even if we give a little bit of that back, it's not like there's this massive exodus of customers from our database. In fact, we called out ongoing growth in our customer count. And if we look at our stores, specifically, right, our stores were up 57% last year and still positive in fiscal '23. So I think what might be happening if you think about what many other companies are calling out with some softness in March and April, it may just be sort of the natural downdraft that we're seeing in retail. And while some very marquee companies have called out softer business in the spring, companies that we have a great deal of respect for, they weren't even cycling the numbers that we were cycling. So the fact that we're down just slightly when the rest of the world of retail seems to be down just slightly. And our LY compares are sort of higher than everybody else, we honestly are not worried about sort of a slow decline for the next several years and I think this could just be a small effect for a transitory amount of time.

And Matt, I'll take the second part. The -- in guiding the year, we used the last few months of sales volume and projected the sales for the balance of the year using the historical weekly sales penetration. And so as that flows out through the year, the second quarter stores are going to -- the comp is going to look similar to the first quarter stores comp with e-com improving to run flat in that second quarter. As we get to Q3 and Q4, the stores get better, but they're still projected to be down in that mid-single-digit range, better than what we'll see in Q1 and Q2 but still not positive and e-com improved to a plus mid-single digit.

Great. And then maybe just a follow-up. As we think about the profitability side, could you just speak or elaborate to promotional behavior that you're seeing today within your own business? Or what you're seeing in the larger Western wear industry? Or just what gives you confidence in the 150 basis points of merchandise margin expansion in FY '24 despite the -- it sounds like a little bit of a softer demand backdrop?

Sure. I would say that the Western industry's promotional tenor is similar to pre-pandemic times, right, with a relatively modest amount of sales and promotions across the industry, perhaps more promotional than 2 years ago when sales were strong across the industry. But nothing really out of the question or out of the ordinary. And maybe the follow-up point to that is, regardless of what the rest of the industry does, we never really chase a promotion or a sale or a reduction in prices across -- from any of our competitors. We think the Boot Barn proposition goes far beyond sort of a short-term reduction in price. And when we look at the health of our inventory, we see no reason to make any significant reductions to move through product. So we're going to continue with our full price selling philosophy. We're going to continue to drive exclusive brands. We get a nice tailwind from [indiscernible] this year. So we're looking forward to, I guess, an eighth consecutive year of margin expansion.

And Matt, just to add on to that, the 150 basis points of [merchant] margin expansion does include the 100 basis points of freight tailwind for the year. So it is 50 basis points of product margin that we're guiding to. And with exclusive brand penetration growth of 400 basis points for the year, that's what's driving a lot of that product margin expansion.

Our next question comes from the line of Steven Zaccone with Citi.

Great. I wanted to follow up on Matt's question about same-store sales. What have you seen from a category performance thus far in the first quarter? And can you talk about your expectations from a category perspective for the year? And then just also, how do we think about ticket versus transaction performance within the guidance range?

Sure. On the second part, I guess we don't really outline our guidance in traffic versus ticket, but we expect to see continued pressure probably low single digit in traffic or average transactions per store with a higher ticket for most of the year. At some point, we'll cycle the increases that we had or the inflationary price increases we took last year. In terms of category by category, it's -- some of the businesses that are less discretionary, more staple-type products are -- continue to do better. What men's Western apparel has seen a slight sequential improvement from the fourth quarter into the first quarter, men's Western boots as roughly flat for the first quarter, quarter to date. The businesses that are down in any significant way are -- they continue to be more discretionary purchases, at least in general. So Ladies boots and ladies apparel continue to be softer. Ladies apparel is down, call it, 12 points or so. Ladies Western boots is high single-digit declines. I always feel obligated to remind the call that the ladies business is up against just enormous growth numbers in both boots and apparel. If I look at Q4, ladies apparel, just as an example, in Q4, it was up against an 83% growth last year and a 43% growth the prior year. So if we wind up giving 10 or 15 points of that back, internally within the 4 walls of the company, we won't get that fussed over that, right? We just grew at 40% and then 80% on top of that. So giving a little bit of it back is almost expected. And when we put it all together, if we end up with a modest decline in same-store sales, coming off of the years and most recent couple of years, I think we should feel pretty good about that.

Just to follow up on that comment. What gives you confidence that it's not fashion risk to the business, right? Like some of the discretionary categories are slowing now, do you think that potentially fashion is working against you, whereas last year, maybe a couple of years, it's worked for you?

Well, actually, I would say it is fashion working against us. I mean we've seen some really outsized growth in the ladies business. Now being mindful of the fact that we're overly generalizing. There's a tremendous amount of our ladies categories that are basic product for women that are working, riding horses, et cetera. But there is sort of a layer on top of that, that we believe was helping us from a fashion sense in the last couple of years. If you go back several quarters, we said it was probably an 8% help. We haven't quantified it, but that 8% help has probably turned against us. I would point you to Page 12 in the supplemental deck that would point to how small the fashion component is within our assortment, and how it's sort of diluted down or really dominated by the more functional product. The second thing I feel obligated to call out is, historically, there's been a lot of dialogue around our outsized growth being driven by fashion or television shows or something. And one of the things we tried to do this quarter is to validate whether that's true or not. So there's not a tremendous amount of publicly available data, but there are for companies that sell product that we sell. And if there was this massive fashion trend or macro cycle based on a television show, you'd see everybody seeing that same growth. And again, if you go back to that same document, I just pointed you to on Page 10, you'll see that the growth we experienced just far outpaces anything that anybody else has seen in the industry, which I think speaks mostly to the execution of the people [indiscernible] Boot Barn, not some sort of artificial transitory piece of fashion.

Our next question is -- I'm sorry. Our next question comes from the line of Peter Keith with Piper Sandler.

I wanted to look at the recent store growth that you have. So you've accelerated up to kind of mid-teens unit growth this past year and expect that to continue. The stores are coming out pretty strong out of the gate, but historically, your new stores have comped double digit in year 2. What are you expecting from [a maturation] angle from this most recent batch of openings the last 12 to 18 months?

Yes, you're right. The stores have gotten out of the gate extremely quickly. The first year performance has been a little bit more in line with sort of the chain comp. So when we're comping slightly positive last year, they were comping slightly positive. We haven't seen a great waterfall for those recent openings. I do think there's been a lot of other sort of macro things moving around. So we'll see what happens as we continue to open up stores over the next couple of years. But we continue to be very enthusiastic about the new store openings, pipeline that we have. We're on pace now for opening up a store a week, so that will be about 100 stores over the next 2 years and add, call it, $350 million worth of revenue and the flow through along with that. So we're excited about the growth prospects going forward.

Okay. Great. And then just looking back at the falloff in comp trend that happened in March and particularly at retail. I guess there's been a debate that I've had with investors in recent weeks around the weather impact and all of the rain out West. Do you think that actually impacted demand, either positively or negatively at all in the last 2 months?

Well, as you know, we tend to not use weather very often as a reason or a rationale for much of anything. So I think over periods of time, of course, it normalizes. I do think if your question is specifically around California, the challenge that we're seeing in California was we have gone from drought to torrential downpours. And we often talk about it as the impact it will have on a particular customer. But in the extremes that we've seen, the impact that it's having is on the farming industry. So during the drought, we had a more difficult agricultural market in the Central Valley, for example, which is one of our strongholds of stores. And then as the rain started to come, we thought that would help that market. It's unclear what that will be going forward because they've had so much rain that we've seen farmland now flooded. So those businesses, we have 2 specific districts in California that are being impacted. And they're down, call it, 15% or so, and they're very high-volume districts. But we'll get through that, whether that's in 2 months or 6 months will be on the other side of the weather. And those businesses, as you know well, Peter, have been perennial strongholds and just real great growth drivers for us for 5 or more years coming into this period, and the team will pick up from -- once the weather passes, and we're pretty certain we'll start to see growth there again.

Our next question comes from the line of Max Rakhlenko with TD Cowen.

So first, can you speak to your new customer counts on a same-store basis compared to where you were pre pandemic? Are your new shoppers behaving similar or showing any differences versus the legacy shoppers? And then just your confidence in being able to hold on to them when the Western cycle does inevitably slow?

Max, can you repeat the first part of your first question, it cut out on us?

Sorry about that. Just your customer accounts on a same-store basis because you typically speak to it overall, and obviously, you've grown a lot of stores. So just curious what they look like on a same-store basis.

I'm not sure any of us have that number specifically at hand. I guess what we could point you to is new stores grew 15%. And of course, the customer count in new stores on average would be less than a legacy store. And our be rewarded customer count grew 22%. So we've seen more customers just mathematically on an average store basis at bare minimum on the delta between those 2 different numbers. On the second piece, yes. I think -- again, there's been a lot of conversation around all the help that fashion trends have given us. The businesses that we would consider fashionable right now are undoubtedly headwinds to our comp and were in the fourth quarter for sure. So I'm not sure there's a big shift that will be seen. And candidly, I kind of come back to the comments I made earlier, a lot of the other companies in our space didn't see the growth that we saw that you would have expected if it was a Western wear trend across retail. Again, I would point you to point to Page 10, where our growth sort of considerably outpaced, the only 4 companies we can get data on from a public company standpoint, and these are great companies, extremely well run, great partners to us, but we certainly were able to outpace whatever underlying fashion cycle there was. But that whatever fashion cycle, there may have been is no longer here. We're certainly up against these outsized growth rates, particularly in ladies apparel, which has a portion of that, that is fashion.

Got it. Okay. And then what do you attribute the acceleration in exclusive brand mix in 4Q? And then it looks like that you raised your exclusive brand penetration growth for '24 for the first time in a while. So just is there anything that you're seeing differently? Are the shoppers may be behaving a little bit differently?

I think our new stores just continue to build -- I'm sorry, our new brands continue to build momentum. Historically, we had 6 brands, then we launched 4 brands in the last 18 months or so. And when we launch a new brand, it starts off small to medium sized and then continues to get more traction and is added into more categories. So that part of the business will continue to grow. We expect it to grow again this year. It has exceeded all of our expectations that we had 5 years ago and 2 years ago and last year. Customers are really responding to them. And they've -- they're just great complements to the third-party brands that we have out there. So most of our big brands and the names that you would know, that our third-party brands, continue to see growth with us. And the exclusive brands are, in general, taking share from secondary or tertiary or certainly nonstrategic brands out there. So we're excited to see that part of the business continue to grow. You can only buy that product at Boot Barn. It's financially accretive, of course and as you well know. So we'll continue to build that business and work it into the assortment to a point where we ultimately say, yes, we've hit a ceiling in a particular category and then we'll slow down. But I don't see that happening for a few years.

Sorry, just on that last point, does the ceiling change at all? Or is it sort of similar as what you thought a year or 2 years or 3 years ago?

I think the ceiling has continued to be increased, if you will -- 10 years ago, and I know that wasn't your question. But 10 years ago, we thought, well, maybe something we could give a 20% and could we do that and still maintain a compelling assortment and a house of brands commitment to our customers and then we kind of marched right through the 20%. Then candidly, what happened was COVID hit and that challenged supply chain. So it gave us a unplanned experiment where we had access to exclusive brands and less access to third-party brands. And that really resulted in a very nice increase in our exclusive brand penetration. At the same time, sales were growing 50%, 55%. So when we put those 2 facts together, we say, well, look, we can double the business in 3 years and grow exclusive brands. We certainly don't see them as a detriment to top line growth. If you -- if I really had to answer that question, I have to go -- and I won't do this on the public call, I promised I'd have to go category by category because there are certain departments or certain parts of our business that are dominated by a brand or 2 and others that have much less national brand strength where the ceiling would be higher. So -- and as a company, our ceiling would be a composite number of rolling up all those departments.

Our next question comes from the line of Jonathan Komp with Baird.

I wanted to just ask a broader question. The whole increase in unit volumes that you've seen in the past few years. It looks like you're embedding about 4.4 million mature store unit volumes for the year ahead. Just any change in your confidence in holding that level? And then as you think about the build for this year based on the weekly sales trends, any perspective you can provide? Does that give enough room if unemployment starts to tick up or how have you factored in any sort of macro sensitivity?

So for the folks on the call, John is alluding to a slide in the supplemental presentation, Page 11, which is similar -- slightly different but similar to a slide that we've used in the past. That says, look, we've had a step-up in the average sales per store and it's now been 24 months. And while we're down slightly from a comp basis that 4.6 has gone to 4.4 that triangulates to roughly a negative 5 comp. We expect that business to stay in the 4.4-ish range going forward, which is kind of this bar chart and the same-store sales guide that's out there. Could it be better than that? It probably could. I think we are trying to keep an eye on what's happening from a macro standpoint, some of the softness in the discretionary categories, some of the things that the sort of mega cap retailers are calling out who have insight into a much broader portion of the population. So we're trying to keep a little bit. If you look at our guide, our guide is more conservative than our current quarter, and I think that's the gap. Yes.

That's helpful. And then maybe question just on the margin profile. It looks like you're rebasing this year around 12% operating margin, give or take. Any perspective you can share just quantifying how much additional expense that includes from the step-up in unit growth and the distribution center? And then as we think out to 2025 and beyond, is it realistic to think you get back to your long-term earnings algorithm after the reset this year?

Yes, Jon, just walking you through some of the move out of the occupancy de-leverage and the negative same-store sales guide for the year is worth around 60 basis points. If you look at the acceleration of getting us from ramping up the new store growth from 10% to 15% is a step up that cost us about 50 basis points on that occupancy de-leverage. The Kansas City distribution center is about 35 basis points of that de-leverage. And that's one where once we get that up to full run rate, we're expecting to see some relief from freight expenses. We're shipping from the center of the country now. So again, as we get to fiscal '25, that will be full run rate in helping us. We've got some remodels that we're doing to get some of our stores, approximately 30 to 35 stores brand right. And so that's in there, that's a step-up from last year that's costing us about 20 basis points. And then there's a lapping of the 53rd week is about 15 basis points. So I think just from a margin perspective, those are some of the things that are dragging this year, and that's outlined in that leverage point slide that we put together. As we turn to the following year, whether we get back to the kind of the algorithm, assuming the top line recovers and gets back to the growth that we've outlined of the low to mid-single-digit same-store sales growth, the expectation would be to continue at 15% new unit growth into the future. And so that's a little bit more of a drag on occupancy, at least initially until we can hit that full run rate but there's no reason to think that we wouldn't get back to that algorithm.

And if I could just add to the commentary around the algorithm, I think we often use the algorithm term as an abbreviation for our same-store sales growth. If we went through the original algorithm, it assumed 10% new unit growth with new stores doing $1.7 million, and we're at 15% unit growth with new stores doing double that. It assumed exclusive brands would grow 250 basis points a year. Over the last 2 years, they've grown 5 basis points a year.

500.

Right, 500 basis points a year. Thank you, our 10 points of penetration. So we really wildly exceeded the algorithm. And if you look at EPS, 3 years ago, we were at $2 this year, we're guiding to $5. The algorithm would [you hit at] 20% EPS growth, we're sort of wildly over 20% EPS growth. So getting back to the algorithm would be a slowdown, if you look at multiple year period an acceleration other than the most recent year's comp. So I do want to make sure that everybody on the call doesn't lose sight of the multiple levers we have to grow this business and how we're overachieving on all of them other than comps for the last few quarters.

That's really helpful. And I guess what I'm asking is, do you see a multiyear earnings reset after the strength you've delivered? Or is there any reason that you can't get back to nice growth with 2024 being the new base here?

I'll take that. So Jim Watkins doesn't feel obligated to give out a 2025 guide as we just have everybody digesting their 2024 guide. I think if we look to next year, the 2 things we have a pretty high degree of confidence in is we'll open 52 stores or maybe slightly more because we'll try to keep the 15% growth. And we expect to continue to see exclusive brands continue to build, whether that's 2.5 or 3 points or 4 points. The same-store sales piece is a little bit more or perhaps a lot more murky, right? We've had incredible growth over the last couple of years. We've given a little bit of it back now. My intuition tells me that we'll be back to low single digits, mid-single digits for fiscal '25, but we'll know a whole lot better in 12 months when we're putting out that guide. But if you're thinking about where the risk is, where the beta is, we do have 100 stores upcoming in the next 24 months that will generate $350 million of sales and $100 million worth of EBIT regardless of what the comp is. And maybe we'll be slightly lower than that or slightly higher than that, but the new store engine is really building momentum. And if you look at our total sales growth, that's where we're continuing to see total sales growth for this upcoming year. Because despite the fact that we're comping down 5% or slightly better than that or guiding to that for this year, we're still seeing total sales growing. And despite a minus [4.5]% comp, we're still assuming we're going to get to a $5 EPS number. So again, we feel pretty good about how we're positioned right now.

Our next question comes from the line of Janine Stichter with BTIG.

I want to ask about the e-commerce business. It seems like it's a bit weaker for longer than we would have expected. So just wanted to understand if there's anything you might change there in terms of the strategy that's still a case of kind of prioritizing the stores business and prioritizing profitability of e-commerce? Or could anything potentially change there in the strategy with maybe the advertising dollars? And then along those lines, just wanted to get your confidence in it turning flat in Q2.

So the second part is also on e-com?

Yes. .

Yes. No change. I mean similar to how we don't chase promotions in our retail stores, we don't think spending more marketing online is going to be EBIT accretive. We certainly could spend more and grow top line and have it be EBIT eroding, but that's just we tend to focus, as you well know, Janine, on the profitability of the business and on growing earnings and not sort of a short-term boost to the e-commerce channel. In terms of the cycling of negative numbers, I think we've been pretty consistent that it would be in the second quarter of fiscal '24, where we would see that business turn positive. So we haven't been surprised. If we've been surprised at all, the one thing we don't split out often is the difference between bootbarn.com and sheplers.com. And the bootbarn.com.com business is already [back to flag] as being dragged down by sheplers.com, which while that might be disappointing when people look at -- when investors look at a negative e-commerce, that business isn't sort of our marquee brand. It's not strategic to us other than it's a -- it gives us the ability to be price competitive if we ever had to be. So I think we're going to continue to operate that business as we have been. I think our degree of confidence that it will turn positive by mid- to late second quarter is still pretty good. And we are -- we continue to focus that part of the organization on building out capabilities for customers across channels, and it's -- they've done some just incredible work. The amount of shipments that are not now shipped from our stores versus a couple of years to put the best product that you could possibly imagine in all of our stores, build the in-store shopping experience. And if it doesn't sell, we can move the markdowns through the e-commerce channel. So I can't say enough about how well the digital team has been doing. And I certainly don't want to spend unprofitable advertising dollars to boost the sales line.

Okay. Perfect. And then a follow-up on the freight. I know you said 100 basis points fit this year. I think over the last few years, you've lost over 2 basis points from freight headwinds. Should we expect that you get some of that in fiscal '25? Or is there just kind of the sense that you're not getting it all back, is that how you're thinking about it?

It's a great question, Janine. I think it's really going to come down to what where freight rates stabilize. We're seeing container costs that are back to pre-COVID levels. Again, I think 9 to 12 months from now or even 6 months from now, we'll probably have a better idea if we get some of that back in the following year in fiscal '25, but we feel comfortable guiding 100 basis points of recovery for what we gave back last year, and then we'll just have to see how the macro settles in.

Our next question comes from the line of Jason Haas with Bank of America.

I was curious if you could talk about how new stores are performing in your newer markets, particularly in the Northeast. I know that there's maybe some concern that the concept wouldn't resonate with customers in the Northeast. So maybe you could tell us how those stores have been performing lately?