Boot Barn Q3 2025 Earnings Report

Boot Barn EPS Results

• Actual EPS: $2.43
• Consensus EPS: $2.05
• Beat/Miss: Beat by +$0.38
• One Year Ago EPS: N/A

Boot Barn Revenue Results

• Actual Revenue: N/A
• Expected Revenue: $608.21 million
• Beat/Miss: N/A
• YoY Revenue Growth: N/A

Boot Barn Announcement Details

• Quarter: Q3 2025
• Date: 1/30/2025
• Time: After Market Closes
• Conference Call Date: Thursday, January 30, 2025
• Conference Call Time: 4:30PM ET

Boot Barn (NYSE:BOOT), a lifestyle retail chain, operates specialty retail stores in the United States. The company's specialty retail stores offer western and work-related footwear, apparel, and accessories for men, women, and kids. It offers boots, shirts, jackets, hats, belts and belt buckles, handbags, western-style jewelry, rugged footwear, outerwear, overalls, denim, and flame-resistant and high-visibility clothing. The company also provides gifts and home merchandise. The company also sells its products through e-commerce websites, including bootbarn.com; sheplers.com; and countryoutfitter.com. The company was formerly known as WW Top Investment Corporation and changed its name to Boot Barn Holdings, Inc. in June 2014. Boot Barn Holdings, Inc. was founded in 1978 and is based in Irvine, California.

Boot Barn Q3 2025 Earnings Call Transcript

Presentation

[Operator]

Good day, everyone, and welcome to the Boot Barn Holdings, Inc. 3rd Quarter 2025 Earnings Call. As a reminder, this call is being recorded. Now, I'd like to turn the conference over to your host, Mr. Mark Dedovich, Senior Vice President of Investor Relations and Finance.

[Operator]

Please go ahead, sir.

[Mark Dedovesh, Senior VP of Investor Relations & Finance at Boot Barn]

Thank you. Good afternoon, everyone. Thank you for joining us today to discuss Boot Barn's Q3 fiscal 2025 earnings results. With me on today's call are John Hazen, Interim Chief Executive Officer and Jim Watkins, Chief Financial Officer. A copy of today's press release along with a supplemental financial presentation is available on the Investor Relations section of Boot Barn's website at bootbarn.com.

[Mark Dedovesh, Senior VP of Investor Relations & Finance at Boot Barn]

Shortly after we end this call, a recording of the call will be available as a replay for 30 days on the Investor Relations section of the company's website. I would like to remind you that certain statements we will make during this call are forward looking statements. These forward looking statements reflect Boot Barn's judgment and analysis only as of today and actual results may differ materially from current expectations based on a number of factors affecting Boot Barn's business. Accordingly, you should not place undue reliance on these forward looking statements. For a more thorough discussion of the risks and uncertainties associated with the forward looking statements to be made during this conference call and webcast, we refer you to the disclaimer regarding forward looking statements that is included in our Q3 fiscal 2025 earnings release as well as our filings with the SEC referenced in that disclaimer.

[Mark Dedovesh, Senior VP of Investor Relations & Finance at Boot Barn]

We do not undertake any obligation to update or alter any forward looking statements whether as a result of new information, future events or otherwise. I will now turn the call over to John Hazen, Boot Barn's Interim Chief Executive Officer. John?

[John Hazen, Interim Chief Executive Officer at Boot Barn]

Thank you, Mark, and good afternoon. Thank you everyone for joining us. On this call, I will review our Q3 fiscal 2025 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. We are very pleased with our 3rd quarter results, which reflect broad based growth across all major merchandising categories in stores and online and across all geographies.

[John Hazen, Interim Chief Executive Officer at Boot Barn]

During the quarter, revenue increased by 17%, including consolidated same store sales growth of 8.6%. Same store sales in both the stores and e commerce channels were positive with stores increasing 8.2% and e commerce increasing 11.1%. We also opened 13 new stores in the quarter bringing our year to date total to 39 new units. From a margin perspective, 3rd quarter merchandise margin expanded 130 basis points driven by supply chain efficiencies, better buying economies of scale and growth in exclusive brand penetration. The strength in sales and margin combined with solid expense control resulted in earnings per diluted share of $2.43 during the quarter, which was $0.36 above the high end of our guidance range and compares to $1.81 of earnings per diluted share in the prior year period.

[John Hazen, Interim Chief Executive Officer at Boot Barn]

Included in our Q3 earnings per diluted share is an approximately $0.22 benefit related to the CEO transition. I am extremely pleased with our Q3 results and I am very proud of the entire team's execution and dedicated effort during the critical holiday season. I will now spend some time discussing each of our 4 strategic initiatives. Let's begin with expanding our store base. We opened 13 stores in the Q3 ending the period with 4 38 stores in 46 states.

[John Hazen, Interim Chief Executive Officer at Boot Barn]

Our new store engine continues to meet our sales, earnings and payback expectations throughout all regions of the country. As a reminder, we modeled new store performance at $3,000,000 of revenue with a cash on cash return on capital of approximately 60% in the 1st year of operation. We have 21 planned store openings in the Q4, which would bring the fiscal year total to 60 new stores opened, meeting our commitment of 15% new store growth annually. We continue to expand our store footprint across the country as we expect to open stores this quarter in Alaska, Vermont and Rhode Island, which would bring our total store presence to 49 states. Given the consistent success of our new store openings across all geographies, we believe that we have the market potential to double our store count in the U.

[John Hazen, Interim Chief Executive Officer at Boot Barn]

S. Alone over the next several years. Moving to our second initiative, driving same store sales. 3rd quarter consolidated same store sales grew 8.6% with brick and mortar same store sales increasing 8.2%. Store comp growth was driven by a 6% increase in transactions, plus a 2% increase in UPT, which drove a larger average transaction.

[John Hazen, Interim Chief Executive Officer at Boot Barn]

From a merchandise category perspective, the 3rd quarter comp sales were positive across all major merchandise categories, led by the combined ladies western boots and apparel businesses, which comped positive low double digits.

[John Hazen, Interim Chief Executive Officer at Boot Barn]

This was followed by the

[John Hazen, Interim Chief Executive Officer at Boot Barn]

combined men's western boots and apparel business, which comped positive high single digits. Denim business, which is included in the figures just mentioned, comped low double digit positive and our combined work boots and apparel business comped low single digit positive in the quarter. From a store operations perspective, I am very proud of our field organization across the country for contributing to another successful holiday season. They continue to provide best in class customer service while driving record sales volume and hiring over 5,000 seasonal store associates.

[John Hazen, Interim Chief Executive Officer at Boot Barn]

From both the supply chain

[John Hazen, Interim Chief Executive Officer at Boot Barn]

and merchandising perspective, we were extremely pleased with the smooth flow of inventory through our distribution centers and stores and our overall preparation for the holiday season, which we believe contributed to the strength of our Q3 results. During store visits leading up to Black Friday and throughout the entire holiday season, we consistently received positive feedback from our store associates. Many of them highlighted how the earlier preparation, particularly advanced floor sets and inventory availability enabled them to better prepare for the anticipated holiday shopping surge, ultimately enhancing their ability to meet customer demand and maximize sales. From a marketing perspective, the team continues to expand our brand awareness and carefully tailor communication to each of our customer segments. We believe the use of radio, direct mail, artist collaborations, digital advertising and connected television has expanded our customer reach and driven increased traffic to our stores.

[John Hazen, Interim Chief Executive Officer at Boot Barn]

These efforts have also increased the number of active customers in our loyalty programs to 9,400,000, a 15% increase over the prior year period. Moving to our 3rd initiative, strengthening our omnichannel leadership. E commerce comp sales grew 11.1% in the 3rd quarter. We are very pleased with the consistent strength of our online business and the team's partnership with the field organization. During the critical weeks between Black Friday and Christmas, we were able to ship approximately half of our online orders from our stores, a result of our in store inventory being accessible to online customers.

[John Hazen, Interim Chief Executive Officer at Boot Barn]

From an organizational perspective, we are happy to announce that John Kossoff has been hired as our new Chief Digital Officer. John was previously the Chief Digital Officer at Tilly's and prior to that was the Vice President of E Commerce and Marketing at Taco Bell. John brings a wealth of experience to our team and his leadership will allow me to focus on my efforts on my current role. Now to our 4th strategic initiative, merchandise margin expansion and exclusive brands. During the Q3, merchandise margin increased by 130 basis points compared to the prior year period driven by supply chain efficiencies and better buying economies of scale.

[John Hazen, Interim Chief Executive Officer at Boot Barn]

Exclusive brand penetration increased by 180 basis points, which was on top of 3 10 basis points of expansion in the prior year period. We continue to believe we can achieve merchandise margin expansion through a combination of supply chain efficiencies, better buying economies of scale and growth in exclusive brand penetration.

[John Hazen, Interim Chief Executive Officer at Boot Barn]

Turning to current business. Through the

[John Hazen, Interim Chief Executive Officer at Boot Barn]

4 weeks of our fiscal January, we have continued to see broad based growth in same store sales. On a consolidated basis, fiscal January same store sales have increased 8.3% with our store comp increasing 7.2% and our e commerce business increasing 17.1%. We feel very good

[John Hazen, Interim Chief Executive Officer at Boot Barn]

about the current tone of

[John Hazen, Interim Chief Executive Officer at Boot Barn]

the business and the start to our Q4. I'd like now to turn the call over to Jim Watkins.

[Jim Watkins, CFO & Secretary at Boot Barn]

Thank you, John. In the

[Jim Watkins, CFO & Secretary at Boot Barn]

Q3, net sales increased 16.9 percent to $608,000,000 The increase in net sales was the result of the incremental sales from new stores and the increase in consolidated same store sales. The 8.6% increase in same store sales is comprised of an increase in retail store same store sales of 8.2% and an increase in e commerce same store sales of 11.1%. Gross profit increased 20 percent to $239,000,000 compared to gross profit of $199,000,000 in the prior year period. Gross profit rate increased 100 basis points to 39.3 percent when compared to the prior year period as a result of a 130 basis point increase in merchandise margin rate, partially offset by 30 basis points of deleverage in buying occupancy and distribution center costs. The increase in merchandise margin rate was primarily the result of supply chain efficiencies, better buying economies of scale and growth in exclusive brand penetration, while the deleverage in buying occupancy and distribution center costs was driven by the occupancy costs of new stores.

[Jim Watkins, CFO & Secretary at Boot Barn]

Selling, general and administrative expenses for the quarter were $139,000,000 or 22.9 percent of sales compared to $124,000,000 or 23.8 percent of sales in the prior year period. SG and A expense as a percentage of net sales decreased by 90 basis points, primarily as a result of the forfeiture of incentive based compensation related to the CEO transition. Income from operations was $99,000,000 or 16.4 percent of sales in the quarter compared to $75,000,000 or 14.4 percent of sales in the prior year period. Net income was $75,000,000 or $2.43 per diluted share compared to $56,000,000 of net income or $1.81 per diluted share in the prior year period. Turning to the balance sheet.

[Jim Watkins, CFO & Secretary at Boot Barn]

On a consolidated basis, inventory increased 23% over the prior year period to $690,000,000 and increased approximately 1% on a same store basis. We finished the quarter with $153,000,000 in cash and 0 drawn on our $250,000,000 revolving line of credit. Turning to our raised outlook for fiscal 2025. The supplemental financial presentation that we released today outlines the low and high end of our guidance range for both the full year

[Jim Watkins, CFO & Secretary at Boot Barn]

and the

[Jim Watkins, CFO & Secretary at Boot Barn]

Q4. I will be speaking to the high end of the range for both periods in my following remarks. As we look to the Q4, we expect total sales at the high end of our guidance range to be $460,000,000 We expect consolidated same store sales to increase 7.8% with the retail store same store sales increase of 7.2% and an e commerce same store sales increase of 12.1%. We expect gross profit to be $168,000,000 or approximately 36.5 percent of sales. Gross profit reflects an estimated 120 basis point increase in merchandise margin, partially offset by 60 basis points of deleverage in buying occupancy and distribution center costs.

[Jim Watkins, CFO & Secretary at Boot Barn]

Our income from operations is expected to be $51,000,000 or 11.2 percent of sales. We expect earnings per diluted share in the 4th quarter to be 1.26 dollars and our effective tax rate is estimated to be 25.4%. Based on our 3rd quarter performance and 4th quarter outlook, we are raising our full year guidance. For the full fiscal year, we now expect total sales at the high end of our guidance range to be $1,920,000,000 representing growth of 15% over fiscal 2024. We now expect same store sales to increase 5.9% with a retail store same store sales increase of 5.4 percent and e commerce same store sales growth of 10.2%.

[Jim Watkins, CFO & Secretary at Boot Barn]

We now expect gross profit to be $716,000,000 or approximately 37 point 4% of sales. Gross profit reflects an estimated 110 basis point increase in merchandise margin driven by supply chain efficiencies, better buying economies of scale and growth in our exclusive brand penetration of 100 basis points. Our income from operations is expected to be $241,000,000 or 12.6 percent of sales. We expect net income for fiscal 2025 to be $182,000,000 representing growth of 24% over fiscal 2024. We now expect earnings per diluted share to be $5.90 a $0.30 increase from our prior guidance of $5.60 We continue to expect our capital expenditures to be $120,000,000 We expect to open 21 stores in the 4th quarter and 60 new stores this fiscal year or 15% new unit growth.

[Jim Watkins, CFO & Secretary at Boot Barn]

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

[John Hazen, Interim Chief Executive Officer at Boot Barn]

Thank you, Jim. We are very pleased with our Q3 results and we believe we are well positioned for a strong finish to our fiscal year. I would like to thank the entire team across the country for their dedication to Boot Barn and our customers. Now I would like to open the call for questions.

[Operator]

We will now begin the question and answer session. And your first question today will come from Matthew Boss with JPMorgan. Please go ahead.

[Matthew Boss, Equity Research Analyst at JPMorgan Chase]

Great. Thanks and congrats on another nice quarter.

[John Hazen, Interim Chief Executive Officer at Boot Barn]

Thank you, Matt.

[Jim Watkins, CFO & Secretary at Boot Barn]

Thanks, Matt.

[Matthew Boss, Equity Research Analyst at JPMorgan Chase]

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

[John Hazen, Interim Chief Executive Officer at Boot Barn]

Yes, Matt. I'll start with the first part and then get to the second question. So as we got into January and we of course have to start with January is the smallest month of our Q4 4 week post holiday and then we get into February and of course our 5 week March. But looking at the specific departments in January, we saw an acceleration in both men's and women's Western categories, specifically boots and apparel. So we saw nice business in those 4 major merchandise categories.

[John Hazen, Interim Chief Executive Officer at Boot Barn]

As we look forward to the remainder of the quarter, there's nothing that we're seeing that makes us feel any different about the business. It was a strong start to our Q4 and we think that will continue. Easter, of course, has pushed out into our next fiscal year, but that's a very, very small piece of our business. So we're not expecting any major impact from that. And then as we look to next year, again, too early to guide, but we always say we like to start with the low to mid single digit algorithm and start to build our budgets from there.

[John Hazen, Interim Chief Executive Officer at Boot Barn]

But again, we're too early to guide or talk about next fiscal year.

[Matthew Boss, Equity Research Analyst at JPMorgan Chase]

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

[Jim Watkins, CFO & Secretary at Boot Barn]

Sure. As we look to Q4 and I'll start there and then go bigger picture, we expect to see the merch margin driven by the same drivers we've seen in Q3 and much of this year. We're guiding that 4th quarter merch margin up 120 basis points with a little more than half of that increase driven by supply chain efficiencies and the balance coming from better buying economies of scale, vendor discounts and 200 basis points of exclusive brand penetration. As we get to next year, the supply chain efficiencies really started about a year ago and so we've seen the benefit of those throughout this year, roughly 70 basis points of improvement on this year. Those will stay with us, but we're not planning those to continue with us in improving in any significant manner.

[Jim Watkins, CFO & Secretary at Boot Barn]

So right now, I'd strip those out. As we look to merchandise margin drivers outside of those as we get into next year, we tend to think of the baseline as being 30 or 40 basis points of merchandise margin expansion. Expansion. We expect that over the next 5 years or so, we'll average roughly 200 basis points of exclusive brand penetration growth. So maybe half of that 30 to 40 basis point comes from continued exclusive brand penetration growth.

[Jim Watkins, CFO & Secretary at Boot Barn]

And then the other half coming from better buying economies of scale that we've seen this year. It's really partnering with vendors and continuing to see the volume discounts that they've given us, whether that's us taking possession of a full container load of product and getting a better discount or the scale that we've been growing at and the growth our vendors have seen has allowed us to go back and get some discounts from our vendor partners and they've been really cooperative in that and we expect to continue to see those discounts increase as we move over the next 5 years.

[Matthew Boss, Equity Research Analyst at JPMorgan Chase]

Great. Congrats again.

[Jim Watkins, CFO & Secretary at Boot Barn]

Thank you. Thank you.

[Operator]

Your

[Operator]

next question today will come from Peter Keith with Piper Sandler. Please go ahead.

[Peter Keith, Managing Director & Senior Research Analyst at Piper Sandler Companies]

Thank you. Good afternoon. So, John, at ICR a couple of weeks ago, when you were describing fiscal Q3, you talked about it wasn't really any fashion trend or anything. I think you're attributing a lot of strength to just execution and bringing in more inventory. So I guess the heart of the question is, do those elements now continue with January and the rest of this fiscal Q4 and maybe even in the coming quarters?

[Peter Keith, Managing Director & Senior Research Analyst at Piper Sandler Companies]

Did note inventory does remain elevated, not thinking about as a markdown risk, but is this an investment that you think will continue to drive same store sales growth?

[John Hazen, Interim Chief Executive Officer at Boot Barn]

Yes, Peter, I do. Looking at January as we came out of Q3, from an inventory standpoint, we're very happy where we ended the quarter and began our Q4. Our markdown inventory is lower than it was last year and lower than pre COVID times. So I feel that we're in a very good inventory position without a fashion risk. As I talked about when we were at ICR, I took another peek at the top 200 products selling, which make up a disproportionate amount of our sales and nothing stood out as high fashion.

[John Hazen, Interim Chief Executive Officer at Boot Barn]

So we feel that it's not a fashion business. We are in a good position inventory wise, not seeing any supply chain disruptions. So feel quite good about the inventory position and the type of inventory as we go into this Q4 into next year.

[Peter Keith, Managing Director & Senior Research Analyst at Piper Sandler Companies]

Okay, very good. And maybe just following up on the last question with the merch margin expansion remaining quite impressive,

[Peter Keith, Managing Director & Senior Research Analyst at Piper Sandler Companies]

the supply chain efficiencies, Jim, could

[Peter Keith, Managing Director & Senior Research Analyst at Piper Sandler Companies]

you speak to that? It seems like there's both a combination of lower rates and then you're leveraging a more centralized distribution center delivery to the store. Are those dynamics going to get lapped? Or is that something that you'll continue to try to leverage for several years?

[Jim Watkins, CFO & Secretary at Boot Barn]

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

[Jim Watkins, CFO & Secretary at Boot Barn]

But it's probably going to be in that 10 basis points, maybe increase next year, not 70 or 60 basis points. And just to give you some more detail on that, as you call that, it wasn't negotiated rates or renegotiated rates with the shipping logistics partners. And we'll continue to work with them. And as we get scale, we expect to see better rates with them. The Kansas City distribution center that went live over a year ago, we really have been seeing some nice efficiencies there.

[Jim Watkins, CFO & Secretary at Boot Barn]

Our folks in Fontana have continued to operate at a very high level and helped with efficiencies. And so we don't expect those to top out at this point and expect to see some more efficiency there, but it's not going to be in the same tune of what we saw this year.

[Peter Keith, Managing Director & Senior Research Analyst at Piper Sandler Companies]

Okay, very helpful. Thanks so much guys.

[Jim Watkins, CFO & Secretary at Boot Barn]

Thanks Peter.

[John Hazen, Interim Chief Executive Officer at Boot Barn]

Thanks Peter.

[Operator]

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

[Steven Zaccone, Analyst at Citigroup]

Great. Good afternoon. Thanks very much for taking my question. First question was on the top line. Clearly, the business is seeing a lot of strength.

[Steven Zaccone, Analyst at Citigroup]

Are there areas where you'd like to see incremental improvement over the course of calendar 2025, whether that's by channel or product category? And then along those same lines, what gives you confidence you can comp the comp in some of these categories where you've seen improvement already like ladies and men's western?

[John Hazen, Interim Chief Executive Officer at Boot Barn]

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

[Jim Watkins, CFO & Secretary at Boot Barn]

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

[Steven Zaccone, Analyst at Citigroup]

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

[John Hazen, Interim Chief Executive Officer at Boot Barn]

Yes. We're as a reminder, we're 30% on order with China, 25% on order with Mexico. China is more rubber soled performance boots and apparel, of course. And then Mexico is where we make our leather soled cowboy boots and where the some of the best leather soled cowboy boots are most of the leather soled cowboy boots are made. We are testing other countries, but we're not going to overreact right now.

[John Hazen, Interim Chief Executive Officer at Boot Barn]

There are great boots made in Mexico and there's supply chain efficiencies we're looking at in terms of how we bring those boots up and how we go about manufacturing those boots and then putting some pressure on our vendors. And then we will maintain margin. So we'll have to pass if there is a significant tariff, we're going to have to work on getting better pricing, some economies of scale on the supply chain and perhaps passing some of that price increase on to the customer to maintain our margin profile.

[Jim Watkins, CFO & Secretary at Boot Barn]

And then just to add, it really kind of depends, Steve, what the tariff number is, right? The first 10% or so is a little easier to navigate through than the second 10% if it goes up higher than that. And our last time, we were able to get some concessions on pricing from our 3rd party vendors as well as our factories on the exclusive brands. We would expect to see that again. And there were some price increases that we did pass through last time and that's as John mentioned, that's what we'd be looking at as well.

[Steven Zaccone, Analyst at Citigroup]

Okay. Thanks for that detail. Best of luck during the rodeo season.

[Jim Watkins, CFO & Secretary at Boot Barn]

Thank you.

[Operator]

Your next question today will come from Max Ratcliffe with TD Cowen. Please go ahead.

[Max Rakhlenko, Managing Director at TD Cowen]

Hey, thanks a lot guys and congrats on the continued momentum.

[Jim Watkins, CFO & Secretary at Boot Barn]

Thank you.

[Max Rakhlenko, Managing Director at TD Cowen]

So first question is how are you guys thinking about density and cannibalization? How close can you get some stores near one another? And what do you see happening with mature stores when a new store does open nearby?

[Max Rakhlenko, Managing Director at TD Cowen]

And then separately, how do you think about taking share from peers versus growing the entire market when you continue to grow penetration in various cities?

[Jim Watkins, CFO & Secretary at Boot Barn]

Sure. I'll jump in on that one, Max. As far as the density and cannibalization, it really depends on the market. If it's a more rural or even a suburban market, we tend to put those stores farther apart obviously than if we're in a densely populated area. I think Houston and Dallas, Southern California, Phoenix area, we've been able to put stores within 10 miles of each other and still see some really nice success.

[Jim Watkins, CFO & Secretary at Boot Barn]

As we go into our approval meetings and looking at real estate, we'll factor in any cannibalization. Cannibalization from the store that it has. We have not seen as much cannibalization as we would have thought we would have seen going back several years. We are approving deals that have some level of cannibalization and we factor that in and they're paying back nicely. So long answer to the first part of your question, Max, but it really depends on the market and how rural it is in determining the density.

[Jim Watkins, CFO & Secretary at Boot Barn]

Your second question was around or second part of the question was around mature stores and what we're seeing around mature stores. The new stores are on a nice path to get up to that mature store level. The waterfall we've talked about over the last couple of quarters is starting to play. And for everybody's benefit on this call, stores used to open at $1,700,000 when we first went public was our target, about 75% of what a mature store does and waterfall up to maturity over the course of 5 or 6 or 7 years. It looks like we're seeing that since the stores that we've opened over the last 3 years or so have been opening at $3,000,000 or north of $3,000,000 We're seeing that 2nd year of comp outperform the chain average by about 5 points.

[Jim Watkins, CFO & Secretary at Boot Barn]

And while still a little bit early, that 3rd year of comp is also outperforming not as much as that 2nd year comp, but outperforming the chain average. One interesting thing that came up this morning when we're going through some reports is we went back and looked at stores that had opened 6 to 8 years ago. And in year 1, those stores averaged $1,900,000 in sales. And today, on average, those 3 years of stores are doing $3,800,000 So they've doubled their sales volume, over the last since they've opened in that 6 to 8 year period. And then as far as the 3rd part of your question, taking share from local competitors, we've put out some surveys in the past and some of our slide decks and talked about how we're taking share from others in the trade area.

[Jim Watkins, CFO & Secretary at Boot Barn]

And we're also seeing some nice improvement from existing customers that have been with us for quite a while and growth in what they're purchasing. And so whether that's them purchasing more of the product, is probably taking some share from where they used to purchase these additional items, years ago.

[Max Rakhlenko, Managing Director at TD Cowen]

Got it. And then John, are there any changes or pivots that you'd like to see made to the product assortment either on the Western or work side, including fashion versus function? And just any other areas where the business could evolve on the product side now?

[John Hazen, Interim Chief Executive Officer at Boot Barn]

No. I mean, the no, we're very happy with our assortment. We're not going to lean in, of course, more fashion. I talked about some of the small challenges we're facing on the work boot side. So those are worth calling out.

[John Hazen, Interim Chief Executive Officer at Boot Barn]

Probably the and this isn't a large change at all, but a small tweak might be the as we open this aperture to the Just Country customer and increase the TAM by $15,000,000,000 as part of that, we could go after that Just Country customer a little more that's perhaps more folks who weren't going to wear a cowboy hat, now they're wearing a baseball hat. Maybe it's some different denim shirts that don't always have a traditional Western yoke, those sorts of things. But in general, we're quite happy with the 4 segments and the product assortment we have for those 4 segments.

[Max Rakhlenko, Managing Director at TD Cowen]

Got it. Thanks a lot guys and best of luck in Q4.

[Jim Watkins, CFO & Secretary at Boot Barn]

Thanks, Max.

[Operator]

And your next question today will come from Janine Stichter with BTIG. Please go ahead.

[Ethan Saghi, Equity Research Associate at BTIG]

Hi. You've got Ethan Sagee on for Janine. Thanks for taking my questions. Could you provide some more detail on the opportunities you see going forward in private label, particularly for men's and work?

[John Hazen, Interim Chief Executive Officer at Boot Barn]

Yes. We so we have our Hawx exclusive brand and Cody James. Cody James has always leaned a little more Western, I think oil workers, pull on work boots. And then we've had Hawx, which has been more competitive with what most folks probably think of as traditional Western brands with lace up work boots. The lace up work boot is probably the one we see more opportunity with on the work side.

[John Hazen, Interim Chief Executive Officer at Boot Barn]

Hawx has turned into a really nice business for us and we think there's more upside in Hawx as it's a newer business in the Boot Barn portfolio. Cody James is not mature by any means, but that kind of more traditional work assortment when you think work that Hawx is, I think has some nice potential for us.

[Ethan Saghi, Equity Research Associate at BTIG]

Got it. That's helpful. And then just one more for me. You previously talked about some of the temporary factors impacting expense leverage this year. And I know you laid out some of the groundwork for merch margin expansion next year, but could you talk about some of the other margin drivers you see for next year and where you see some of the leverage points shaping up for certain line items?

[Jim Watkins, CFO & Secretary at Boot Barn]

Yes. It's a little early to talk too much about the detail of next year and how the things are going to roll up, different expense line items and in SG and A, but a couple of things I'll point you to. This year, we had some outsized increases in our lease expense related to our new corporate headquarters. And so we saw a step up in that and that should be flat next year to maybe a little bit of a benefit as we've talked about that on the call. So that should be a help to SG and A.

[Jim Watkins, CFO & Secretary at Boot Barn]

This year, we also were up against pretty low incentive based compensation given the performance of the company a year ago on the growth level anyway. And so this year, as we've built back some of that incentive based compensation, that's been a drag on the business. Even with the reversal that we talked about with Jim leaving last quarter and some of the expense reversal we have with that, it's still a headwind this year compared to last year, despite the tailwinds of Jim's departure. And so next year as we get into the planning around the incentive based comp that should be a little bit of a positive for us. Other line items in there around insurance and that sort of thing, we'll have to work through the renewals and see where those are coming and build that up.

[Jim Watkins, CFO & Secretary at Boot Barn]

We also had a legal settlement charge this year that shouldn't repeat with us next year that was pretty sizable. So those are some of the things that we're starting to think about as we look into next year, but not anything significant or meaningful that we see on our radar that we'll need to expense besides just some normal growth in the business, adding some additional headcount to support the 60 to 70 stores that we'll open next year, 65 to 70, I should say, that we plan to open next year, new regional vice president, district manager, some of the support team that we'll need to support that growth, but nothing in that I think would be meaningful on the P and L, SG and A.

[Ethan Saghi, Equity Research Associate at BTIG]

Got it. Really appreciate all the color. I'll pass it on.

[Jim Watkins, CFO & Secretary at Boot Barn]

Yes. Thanks Ethan.

[Operator]

Your next question today will come from Cory Tarlow with Jefferies. Please go ahead.

[Corey Tarlowe, SVP - Equity Research at Jefferies Group LLC]

Great. Thanks and good afternoon. John, I just wanted to ask on the increase in transactions that you've seen. It obviously speaks to the really continued health of the business in my view. Could you just talk about if there's any sort of behaviors that you're seeing that are changing?

[Corey Tarlowe, SVP - Equity Research at Jefferies Group LLC]

I think your customer visits you twice a year on average, but is that new customers? Is it existing customer visiting more frequently? Would just be curious to get a little bit more flavor around the health of the transactions that you've seen.

[John Hazen, Interim Chief Executive Officer at Boot Barn]

Yes. So yes, the plus 8 and change for the quarter, points of that coming from transactions, which is our proxy for traffic. I hate to give a boring answer, but we spend a lot of time looking at our customers by income demographic, by customer segment and the health of our customer and the frequency that our customer shopping is very consistent across the income brackets. It's also very consistent between the penetration of Western works, Wonder West Fashion and Just Country. So we haven't seen any real swings.

[John Hazen, Interim Chief Executive Officer at Boot Barn]

We have reassorted over the last year, our kind of good, better, best and feel that we are nicely positioned and at the best level with exotic boots and 7 For All Mankind jeans. And then at the good level, we've got some new Western shirts that are performing very well and we feel good about the level of product and inventory we have in our stores for the customer that might be at that lower income bracket. So all that to say, it's been incredibly consistent and I think part of that is full credit to the merchandising team for having the product at each level of good, better and best to meet those customers' needs.

[Corey Tarlowe, SVP - Equity Research at Jefferies Group LLC]

Understood. Very helpful. And then I guess for Jim, you talked about in response to a prior question, I think it was 30 to 40 basis points of merchandise margin expansion long term. Is there any way to also think about as you continue to add these new stores, what the B and O deleverage component would be? And theoretically, I would think that should lessen over time as you continue to scale and build out the infrastructure.

[Corey Tarlowe, SVP - Equity Research at Jefferies Group LLC]

So I'm curious what that aspect might look like over time, if you have any color on that?

[Jim Watkins, CFO & Secretary at Boot Barn]

On the buying and occupancy deleverage, it's really a function of growing 15% new units a year. And in the next 2 years or so, we'll have the hurdle on rate of having increased our store openings from 10% new units a year to 15% new units a year. And so that puts some pressure on that. I'm not going to provide a guide on what the leverage points will be for the next few years. We talked about roughly 6% same store sales growth in order to leverage buying and occupancy was the number we put out there this year.

[Jim Watkins, CFO & Secretary at Boot Barn]

It's probably a good baseline for next year to put in your model, but we'll give you an update on that when we get to the May call. As we start to cycle the 15% new units opening and we're seeing the new stores that we've opened at these higher volumes at the higher flip waterfall over the next couple of years that does help that leverage point a little bit, but I don't think that comes down to a 3 or 4 comp. It maybe comes down a half point or point as far as the comp needed to leverage that. The fastest thing we could do to leverage buying an occupancy and distribution center cost would be to stop opening new stores. That would help the rate.

[Jim Watkins, CFO & Secretary at Boot Barn]

It would hurt the earnings dollars. And so that's something that we're not looking at. So it's something that will be with us for a while as we continue to open at this clip. So that's how we're looking at it.

[Corey Tarlowe, SVP - Equity Research at Jefferies Group LLC]

Got it. Thank you very much. Very helpful.

[John Hazen, Interim Chief Executive Officer at Boot Barn]

Thanks, Craig.

[Operator]

Your next question today will come from Jeremy Hamblin with Craig Hallum Capital Group. Please go ahead.

[Jeremy Hamblin, Senior Research Analyst at Craig-Hallum Capital Group LLC]

Thanks and congrats on the strong results. I first wanted to just come back to making sure I understood some puts and takes here and thinking about SG and A on a go forward basis. So think just the math on a pretax basis on the CEO transition benefit in the quarter, I think works out to about $9,000,000 pretax. I wanted to just get confirmation on that and also just confirmation that all of that falls just in the Q3?

[Jim Watkins, CFO & Secretary at Boot Barn]

The $6,700,000 is the SG and A number. It's not a $9,000,000 number, Jeremy. And it's really a function that those costs or those reversal of expenses were not tax deductible. And so they flow completely to the bottom line into net income. So it was a $6,700,000 reversal of that expense in the quarter.

[Jim Watkins, CFO & Secretary at Boot Barn]

And yes, that was a one time that was with us that you reversed the multi year incentive based stock comp and then any annual incentive award that was being accrued thus far this year. So that will not be a benefit as we go forward as far as there won't be any more to reverse out of the P and L.

[Jeremy Hamblin, Senior Research Analyst at Craig-Hallum Capital Group LLC]

Great. Thanks for the color. And then just switching gears here to thinking about merchandising, product assortment as we look forward. You've had a tremendous amount of success here and a lot of momentum recently. You mentioned what you're seeing in men's and women's on the Western side.

[Jeremy Hamblin, Senior Research Analyst at Craig-Hallum Capital Group LLC]

But as we look ahead, I wanted to get a sense, John, what you were thinking in terms of specific categories that you feel there's real opportunities here as we get into FY 'twenty six? Where do you see kind of the best opportunities, maybe something that you didn't execute as well on in FY 2025 or other specific categories where you feel like maybe there's opportunities exclusive brands or otherwise?

[John Hazen, Interim Chief Executive Officer at Boot Barn]

Yes. I think the biggest one that comes to mind is continuing what we accomplished in the Q3. I mentioned it in my opening comments, but it was very eye opening to see the commentary from the store partners or associates, as we visited 20 plus stores during the holiday season, about the level of inventory, the freshness of the inventory, being in stock in denim. Those things weren't necessarily true the entire year. So I think the holiday season and how well the merchandising and planning teams and the store operations teams executed that holiday season is something that has reenergized how we're going to approach inventory and assortment planning as we get into next fiscal year.

[John Hazen, Interim Chief Executive Officer at Boot Barn]

So in terms of trends, if that's where you're going, we're not seeing any big shifts in trends. We're not seeing a move much deeper into flannels or Western yolks, anything of that sort. Our denim continues to be mostly bootcut. We're not seeing contemporary silhouettes like barrel jeans and things of that selling in our store. We've tested a couple.

[John Hazen, Interim Chief Executive Officer at Boot Barn]

So I think it's pretty steady in terms of the aesthetic and what we sell. It's really how we prepare for some of the larger selling seasons like rodeo season as we get into it. We feel very energized by the performance from the holiday season.

[Jeremy Hamblin, Senior Research Analyst at Craig-Hallum Capital Group LLC]

Great. Thanks for taking the questions and best wishes.

[John Hazen, Interim Chief Executive Officer at Boot Barn]

Thank you.

[Operator]

Your next question today will come from Ashley Owens with KeyBanc Capital Markets. Please go ahead.

[Ashley Owens, Vice President & Senior Equity Research Analyst at KeyBanc Capital Markets]

Thanks for taking the question. Just one quick for me here, but kind of wanted to talk about the ATV and maybe some of the decline you're seeing there quarter to date in Q4. Just any big change in trend that you're noticing, maybe pricing or just a mix shift? Any color you could provide there would be helpful.

[Jim Watkins, CFO & Secretary at Boot Barn]

So

[Jim Watkins, CFO & Secretary at Boot Barn]

sorry, I don't know if you cut out or what. You're asking if the average transaction value, was that what you're asking if that declined during the quarter? Sorry, if I missed that.

[Ashley Owens, Vice President & Senior Equity Research Analyst at KeyBanc Capital Markets]

Yes. And more so on quarter to date in 4Q.

[Jim Watkins, CFO & Secretary at Boot Barn]

Yes. So looking at the comps for the Q3, we comped up 8.6%. We've guided the 4th quarter 7.8%. So far in January, we're up 8.3%. So we've seen some really nice continued growth in the and those are all transaction based numbers.

[Jim Watkins, CFO & Secretary at Boot Barn]

And if you look at the basket size or the the which is a mix between the units per transaction that was up 2 during this last quarter and AUR was kind of flat for us in the Q3. We would expect to see the growth that we're seeing in January. I guess, January followed a consistent pattern as far as the AUR being flattish, UPT being up a little bit and really being led by transactions. As we get through the rest of the quarter, we expect that trend to continue. As far as the maybe where you're going with this question is on the same store sales and that the Q4 guide is a little bit below the Q3 guide despite January still being a +8.

[Jim Watkins, CFO & Secretary at Boot Barn]

We've looked at the trends over the last 4 months, Q3 January, and we looked at historical seasonality and how that rolls out into February March and that's really how we've guided that quarter, which while down just a little bit from a deceleration from a +8.6 percent, a +7.8 percent is we feel a very strong guide and reflective of what the recent trends in the business is. Part of that in March, we do have a little bit tougher comp than we have in January and February, but didn't feel like guiding something above a 7% to 8% was appropriate.

[Ashley Owens, Vice President & Senior Equity Research Analyst at KeyBanc Capital Markets]

Great. Thank you.

[Jim Watkins, CFO & Secretary at Boot Barn]

Thanks, Ashley.

[Operator]

And your next question today will come from Jonathan Komp with Baird. Please go ahead.

[Jonathan Komp, Senior Research Analyst at Robert W. Baird & Co]

Yes. Hi, good afternoon. Thank you. Sorry if you've touched on this already, but I'm curious if you could share more light on the e commerce acceleration, the performance looks very good there. And I'm wondering if there's anything specific that you'd highlight in terms of the execution or other drivers?

[John Hazen, Interim Chief Executive Officer at Boot Barn]

Yes. The ecom business is driven, of course, mostly by bootbarn.com. More than 75% of our ecommerce business is from boobarn.com, Sheplers, Sheplers Amazon Business and Country Outfitters are nice businesses, but all those together make up the remainder of the business. The ecommerce business is driven by transactions and of course we know traffic on-site. So it is a traffic driven business, which is the best answer.

[John Hazen, Interim Chief Executive Officer at Boot Barn]

In Q3, for example, we had over 1,000,000 people visit our store locator page on bar.com. Our goal is always to take an e commerce customer and turn them into a store's customer. But we're seeing nice business on e commerce driven by traffic and some of the gains we're seeing on the Google paid side. It's called Pmax for those who care. But Google has a tool that has been very good at finding us new customers and we'll never chase an unprofitable transaction from an e commerce standpoint.

[John Hazen, Interim Chief Executive Officer at Boot Barn]

We hold ourselves above a 4 on return on advertising spend and we've been able to find more customers that match that gate that we put on ourselves. So we've had better luck finding new customers and prospecting customers online. It's driven a lot of traffic to the site and conversion has been relatively steady. Of course, it came down in January versus the holiday quarter, but it is flat in January year over year and it really is a traffic story.

[Jonathan Komp, Senior Research Analyst at Robert W. Baird & Co]

Yes, that sounds encouraging. And then just as we think about the stores, I know you're not a promotional driven business, but just a few of the typical campaigns and things that run during the year. Any are you thinking any differently as you look ahead the next few quarters about any of the plans there? Thanks again.

[John Hazen, Interim Chief Executive Officer at Boot Barn]

I think one of the only small tweaks we'd make is we've been happy with how connected TV has performed, and we've been very happy with some of our artist collaboration. So we're going to we had Jelly Roll, Morgan Wallen, Lyon last year and we feel good about continuing to look for opportunities with different artists. And of course, we have the long term relationships with Miranda and Brad that have been incredibly successful. So we will continue to lean into artist collaborations, sponsoring Morgan's Festival down in Gulf Shores of Alabama coming up this spring, Sand in My Boots, it will be the Boot Barn Stage. That is going very well and continue to use traditional radio.

[John Hazen, Interim Chief Executive Officer at Boot Barn]

So we're not a big fan of connected radio. We're a bigger fan of connected TV, allows us to get into markets that would otherwise be too expensive for some of our media buys. So that's a quick summary of how we're thinking about next year.

[Jonathan Komp, Senior Research Analyst at Robert W. Baird & Co]

Yes, that's great. Thanks again.

[Jim Watkins, CFO & Secretary at Boot Barn]

Thanks, John.

[Operator]

This concludes our question and answer session. I would like to turn the conference back over to John Hazen for any closing remarks.

[John Hazen, Interim Chief Executive Officer at Boot Barn]

Thank you, everyone, for joining the call today. We look forward to speaking with you on our Q4 earnings call. Take care.

[Operator]

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

Participants

Executives

• Mark Dedovesh, Senior VP of Investor Relations & Finance
• John Hazen, Interim Chief Executive Officer
• Jim Watkins, CFO & Secretary

Analysts

• Matthew Boss, Equity Research Analyst at JPMorgan Chase
• Peter Keith, Managing Director & Senior Research Analyst at Piper Sandler Companies
• Steven Zaccone, Analyst at Citigroup
• Max Rakhlenko, Managing Director at TD Cowen
• Ethan Saghi, Equity Research Associate at BTIG
• Corey Tarlowe, SVP - Equity Research at Jefferies Group LLC
• Jeremy Hamblin, Senior Research Analyst at Craig-Hallum Capital Group LLC
• Ashley Owens, Vice President & Senior Equity Research Analyst at KeyBanc Capital Markets
• Jonathan Komp, Senior Research Analyst at Robert W. Baird & Co