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

All right. Thanks. Good morning, everyone. Good to see you all. So my name is Peter Keith. I'm the senior research analyst at Piper Sandler covering hardlines and broadlines. Very happy to have Boot Barn with us today. As many of you know, they are the largest retailer of Western and work product in the U.S. With me on stage is Interim CEO, John Hazen; and CFO, Jim Watkins. Welcome both.

Thank you.

Thank you, Peter.

All right. So let's just kick it off. You guys had a preannounced release on Friday afternoon. Could you just walk us through the results that you gave everyone some insight into?

Yes, sure. It was -- the holiday quarter was very, very strong. We beat the high end of our guidance by 2.6 points. So high end was at 6, and we came in at an 8.6 comp, $608 million in sales. So really, really nice quarter. You always kind of wonder, as you go into a shortened holiday season, how things are going to play out, and we were very, very pleased with the holiday season overall.

Okay. And the merchandise margin was up, what...

130...

130 basis points. So pretty clean sales, didn't have to promote.

Yes. So it was very nice. The promotions were in line with what we saw last year, maybe a little bit lower than what we did a year ago. And the way the team really set up the merchandise, the store operations team, the marketing that was set up for the holidays, it all works perfectly, and we're able to grow our exclusive brand penetration this quarter 180 basis points. We continue to see nice supply chain efficiencies that we've been working on over the last couple of years and better buying economies of scale as our vendor partners have increased discounts as our volumes have -- purchases with them have increased. And so it's been a really nice -- that looks like it will be our seventh year in a row with an average of 100 basis points of merch margin expansion. So we're really pleased with that.

Okay. Great. So same-store sales of 8.6%, it's fantastic. So some of the questions that we get is there's got to be some sort of transitory fashion trend. Everyone is watching Landman now, I guess. So what do you think is driving the strong same-store sales results in what's kind of a bit of a sluggish consumer environment?

Yes. I was waiting for the first Landman reference. It's -- no, we don't think the tailwind is caused by fashion, and we don't think it's a tailwind at all. If you look at -- Peter, I think you quoted some of the Farm & Ranch numbers, they were having a little bit of a tougher time, some soft comps. We look at some of our third-party vendors who we respect greatly, and their business is good, but not as good as what we're seeing, some of those publicly traded companies. So I think it's more a result of our operational execution. If we look at our inventory flows leading up to the holiday season, and we visited quite a few stores prior to holiday, we are in the best inventory position, I think we've been in, in the past several years. The holiday Christmas weekend and the days leading up to Christmas being spread out, I think, allowed us to schedule labor and spread out some of those sales over the last few days a little bit better. And then being a stores-first company and focusing on stores, I know that sounds strange coming from the former digital guy. But all of our direct mail, and we send out north of 4 million pieces, all were post Cyber Monday. So everyone's chasing those Black Friday and Cyber Monday online sales with their direct mail pieces. We were more patient and we waited until we had that window post Cyber Monday, post Cyber Week to talk to our customers and encourage them to come visit us in store, which is more important to us.

Okay. Great. Well, let's parlay off of that question or that answer. So yes, John, former Chief Digital Officer, maybe a new face to many in the audience here, now Interim CEO. So congratulations on the interim tag. Maybe just give everyone some information on your background and maybe how you approach leadership.

Sure. So I grew up in Montreal, moved to California about 25 years ago. My background started in technology on the supply chain side. So worked for Kellwood for many years on product life cycle and tech packs as everyone started to move offshore in the early 2000s, had an opportunity to move into e-commerce during NIKE's first big D2C push in 2007, 2008. I was working at Hurley at the time, and they pushed Hurley and Cole Haan as well as Converse, all of us, to go direct. And that's how I kind of moved from traditional technology into the world of e-commerce. From there, I spent time at True Religion, where I came in as the Head of Omnichannel and eventually oversaw stores for the first time. So we had 160 stores at True Religion, 100 full price, 60 outlets. And that was the first time I kind of managed the district manager team and ran the stores business. Spent a year in technology at Ring video doorbell up until the Amazon acquisition, and then came over to Boot Barn. When I came to Boot Barn, I was the Chief Digital Officer, and for the first 2 or 3 years, focused on moving the business to bootbarn.com from Sheplers and making Boot Barn the digital flagship, which I think we'll talk a little bit about. And then Jim Conroy gave me a chance to run marketing and the customer experience. And over the past 3 or 4 years, I've probably spent less than half my time on the digital business itself and more on our opening up the aperture for our customers, our Just Country customer and running the marketing and customer experience organization.

Okay. Great. And then so the Board is there doing an ongoing CEO search. Is there a sort of point in time we should think about where that process concludes and perhaps and you're made permanent CEO?

Yes. The Board believes this is in the April to May time frame, they'll make a final decision. And you asked about my kind of leadership philosophy. I always lean back to my days at Hurley/NIKE. And NIKE had this saying, it was simplify and go. It was one of their maxims at the time. And especially in the world of technology, e-commerce, omnichannel, people tend to embrace complexity. There's a bit of a complexity trap and everyone wants more and more. So I find it almost tougher to restrain yourself and focus and simplify when it comes to the customer experience, when it comes to the features you have on the site, when it comes to how our store partners are using the different tools we've put in from an omnichannel standpoint. So I don't know. I'll lean back on my NIKE days and go simplify and go and avoid complexity wherever possible.

Okay. I like that. I guess one topic I just wanted to dig into is on the turnover. And so it's funny, we don't think about Boot Barn having a lot of turnover. So CEO Jim leaves, and yet many people that I met during the pre-IPO process, which is now a little over 10 years ago, were still at the organization. So I thought that might be interesting just to share maybe kind of what turnover at the executive level looks like. I think you guys have some interesting stats on that. And what do you think it is about the culture that just provides such strong continuity?

Yes. It is culture above all else, all else. We've had some very talented individuals that we've talked to. And if they don't fit the culture and realize they won't fit in perfectly with the team, we just don't hire them. Jim has been with the company over 10 years. Laurie, our Chief Merchant, has been with the company over 20 years. Mike Love, our Head of Stores, has been with the company over 10 years. I'm coming up on 7 years with the company. And it is a very unique culture where we can all talk freely. We -- I hate to use the word collaborative, everyone uses it, but it's very, very different. No one is climbing over each other. There's no backstabbing. And if you don't fit in with the way that management team works, there'll be an organ rejection. I've never worked anywhere quite like it in my career.

Okay. Great. And John, you talked about widening the aperture, widening the customer funnel. And I think that has been a multiyear process and you're running marketing. So I'm curious, maybe you could talk directly on some of the initiatives the company has taken to widen that customer base.

Yes. So we had to work Western and a fashion customer for many years. And we came up with this customer segment a few years back called Just Country. And imagine someone who drives a Ford F-150, which is the best-selling vehicle in the country. They wear a backwards baseball cap, they're listening to country music. They may work in blue-collar employment, they go to country concerts. They're rural, but they're not Western, right? They don't work on a ranch. They may have never ridden a horse in their life, never touched a cow or worked with cattle in their life, but they like that country lifestyle. And if you look at our customer from that lens, it becomes a much wider group of people. A lot of the people on every state skipped from New York to Los Angeles and what Jason Aldean calls the Fly Over States, and that's mostly a Just Country customer. So we split that customer out from the traditional Western customer where maybe the rodeo content and the hardcore Western content wouldn't resonate as much with them. And we talk to them more about some of the artist collaborations we're doing with different country artists, some of the more rural or Just Country events, think NFL, think NASCAR. So kind of talking to a customer who is not a hardcore rodeo fan is probably a good way of putting it.

Okay. And I guess you guys have a very strong loyalty program be rewarded. So maybe just share where you are from a total count. And then as you're looking at customer demographics that are joining the loyalty program over the last 5 years, have you seen any certain type of demographic over-index to joining the program?

Yes. We have 9.4 million loyalty customers now versus 8.2 million a year ago, so up 15%. We look at it very, very closely. I'm always trying to tease out, is there something going on from an income demographic cohort. And it is a very, very stable group of customers. We're growing across all income brackets. We're growing with both male and female customers, all age groups. I suppose the one nuance -- and it is small is -- it skews a little more female and a little younger. And we see that sometimes in different performance come to town. Morgan Wallen will come and play a stadium, and we'll see our female business pick up just a little bit. But overall, it is growing across all demographics.

Okay. And then leveraging that data, I guess you talked about sending out a mailer in December, but how do you leverage that customer loyalty database to do direct marketing?

Yes. So we segment our customers based on the product they buy. So you may be a 22-year-old female, but you're buying product, you then ask, do you go once every 3 months to go pick up Wrangler jeans for you, you're going to fall into the Western segment. So it's a segment of the product that you're buying, not the segment of necessarily who you are as a person. And so we have 4 segments: our fashion segment, Wonderwest; our Work segment; our Western segment; and now this Just Country segment. And we'll create everything from different direct mail pieces to different online ads that we'll have on Meta and different social platforms, to different radio spots based on those different segments. So it applies to all the different pieces of media that we use. We'll go, hey, this rock station may get more Just Country versus a hardcore Western station, they get a true Western message in terms of what we're doing from an advertising standpoint.

Okay. And the concert and artist sponsorships and partnerships are certainly interesting. Can you highlight a couple of those that you think have been particularly helpful in how that drives consumers to your stores?