Boot Barn Holdings, Inc. Stock

Welcome, everybody, to the Boot Barn fireside chat at this year's 2026 Goldman Sachs Global Consumer Conference. I'm John Keypour. I cover specialty apparel and retail. I'm very pleased to introduce John Hazen, CEO; and Jim Watkins, CFO. Hello, everybody. Thank you guys for being here.

Let us jump into it. So I'm sure everybody knows that last night, there was an update -- business update to the quarter. And we heard a little bit more detail about September and August. So I guess, maybe if you guys want to very quickly encapsulate what was in the press release would be helpful.

Yes. Just taking one step further back from there. This was a recap. We're almost through our Q2, but we kicked off the year with a plus 5% comp in our first quarter. And business then was flat in July. And we put out the release looking at all of August and the first 3 weeks of September, where in both August and September, we saw comps improve to a plus 2. And we expect to hit the high end of our guidance from a total sales standpoint and from an EPS standpoint and be within guidance from a same-store sales standpoint. So we feel great about Q1 and where we are with Q2 with just a couple of weeks left.

Okay. July's flat comp was maybe a little bit softer than people expected. I think you guys did a very good job of tackling why and maybe delineating why that might have been. Obviously, we're seeing an acceleration now, which is positive. But you had pointed out there was a major -- there was -- sorry, a deceleration across all major Western categories, particularly women's boots. So I think we're all curious about exactly what improved from July. How much of that was women's boots or not, how much it was Western wear or not, that sort of thing.

Yes, sure. Yes. And that ironically gave us a little bit of confidence in July that it was so broad-based in Western yet not in work. Our work business held up nicely during that July time frame when the overall comp was flat. As we moved into August and September, we're still softer in women's boots and women's boots is roughly 11% of our business. It's smaller than men's apparel, work boots, men's western boots. So the merchandising team is working on improving the women's business, getting freshness in for the holiday season, both from third-party and exclusive brands. So we're excited with what we have coming for the holiday season in the women's business. And outside of that, we haven't given an update by every other merchandise category, but suffice it to say, it was broad-based and work continued to perform very nicely in August and September, both work boots and work apparel.

Okay. You had pointed out that in July, there were some exogenous factors like the World Cup and things like that, the cadence of some concerts and things like that as well. I'm wondering if there's anything about August or maybe September exogenously that may have been either a pressure point or a little bit of help that you'd like to expound on.

Yes. The July was -- we believed and we saw that stadium tours were down in July. And the day after we reported, Live Nation came out and said attendance was down, I think it was 14% domestically to kind of reinforce our theory on what was going on with stadium concerts during that time.

If we look at the concert activity, I'd say we're normalized right now. It's not a catch-up. We're not going to get what was perhaps lost during summer, but everything feels very normalized and big announcements already starting for next summer. Kenny Chesney just announced a massive stadium tour for next summer. So we're seeing those already begin looking forward a little bit.

So it's -- and then as we got into August and September, the only thing, and we don't talk about this often, but we live in Southern California and the weather was incredibly hot across the rest of the country, and we tend to do better when the weather is cooler and wetter. But it was a record-breaking heat that we normally don't see in Southern California and in other parts of the country as well.

Okay. Being that we're at a consumer conference, one of the major themes, I think all of the fireside chats are touching on is generally just the consumer, the trends in the consumer. Just considering the change in the company over the past few years, can you explain the types of consumers that differ now that shop at Boot Barn versus maybe 3 or 4 or 5 years ago? And then if we could -- well, answer that and then we'll dip into some more about general health.

Sure. Yes. -- first of all, our core consumer is really what drives our business. We very much are a replenishment business, whether it be boots or apparel. Many of our top-selling denim styles have been in the line for several years, 5-plus years in some cases. So much of our business is driven by whether it's a traditional blue-collar tradesman on the work business or if you look at our Western business, working in agriculture, ranching, farming, those sorts of things. So that's always kind of been the core of our business.

As we look to open the aperture, 4, 5 years ago, we came up with another segment we coined our country lifestyle segment. And that customer is someone who's perhaps never been -- never worked on a ranch, never ridden a horse, never been around cattle, but wears a baseball cap instead of a cowboy hat, drives an F-150, listens to country music, enjoys hunting and fishing in a rural lifestyle. And so that's where we looked at additional apparel, additional entry points from a Western boot standpoint and started marketing to that sort of consumer that isn't a core Western guy but loves a rural lifestyle coupled with country music in a pickup truck.

Got you. I guess how do you perceive the funnel of that new lifestyle customer into the brand? I don't know if that's like maybe we could talk about a pace of it accelerating or not or just generally, how do you see that -- the entry of those consumers to Boot Barn?

It's gotten much easier with the way digital marketing works today. For many years, digital marketing was somebody types in cowboy boots into Google and you market to them and you convert them into a customer, whether it be in stores, which is where we want them to convert or online. But they had to have the top of mind to say, I'm interested in cowboy boots or cowboy hats or anything within Western Lifestyle.

As everybody, I'm sure, knows today, you discover brands based on Meta advertising really, it's Meta more than anything, TikTok too as well for the younger customer. But being able to introduce people to brands or products they didn't know they were interested in is something that is unique to Meta and TikTok. And it's not just the algorithm. If it was just the algorithm, this would work well on YouTube.

The reason it works well on Instagram and TikTok is the one place the consumer wants to be interrupted. He or she does not mind an ad. They enjoy the ads versus if you're in the middle of a YouTube video for whatever you're watching, you're going to be somewhat annoyed by whatever ad interrupts your experience. That's not the case in the world of social. And so from a product discovery standpoint, we love using Meta and TikTok for bringing new folks into the funnel.

That's -- as you were saying that I realize that that's how I -- that's -- I mean...

YouTube ad sends me over the edge.

You're right. I guess touching on marketing very quickly, and then I want to pivot back to the consumer a little bit more. It's been about 2 years since you guys pivoted to a digital-first, I guess, strategy. I guess, have you seen -- what have you seen in terms of that engagement involving the acquisition of new customers, the cost to acquire them? And what would you say about retention involving the strategy?

Yes. We are very pleased with the ramp-up in digital advertising. It really -- we haven't shifted what we do from an e-commerce PPC spend standpoint. The e-commerce business is a great business. It's 10% of our business. The vast majority of our business runs through our stores. And so the advertising that we're doing digitally is around driving folks into the stores and the awareness of our exclusive brands and of Boot Barn. And back to what I was just mentioning, it really is going through Meta and TikTok.

If you rewind tape 3 years, you would have to set up a target. I'm looking for a 25- to 35-year-old female or male who maybe lives 50 miles outside of these major metropolitan areas, you would try and intuit what sort of customer you're trying to target manually, all of that audience building has gone digital now. And so we're seeing better performance from these ads because now you simply tell the AI audience building tool, find the customers who would like X, Y or Z, and it's off to the races.

Cool. Okay. So a quick pivot back to consumers, and then you mentioned AI, so I would like to touch on that as well. Sure. I guess, very simply, how do you see the health of the consumer evolving in the back half of the calendar year of '26. And same question about '27, where -- I guess, internally, where are you thinking about the consumer being better or worse, I guess?

I'll start with where the customer is today. We have not seen any divergence in a K-shaped customer, K-shaped economy. We are doing well across price points in good, better and best. And our customer had always been pretty fiscally responsible. So we feel great about the health of our customer today.

Looking forward, I feel good, very good about the holiday season. I think from an inventory, a marketing, a merchandising, a store operations perspective, we're ready for a great holiday season. And I think the customer is going to show up. The big question, of course, is everything going on with diesel prices, oil, a war, interest rates, the Fed tomorrow, pick a topic. So there is some unknowns in there. But today, we feel very good about our consumer across all income levels.

Okay. Which is sort of a reiteration of what you've been saying all year. I think it stands apart from a lot of the other commentary we've heard. There was a brief digression to AI, but I have some questions about it. They're kind of in 2 modes. The first is essentially I guess, on the cost side, how much do you think that AI will change your business? And in what kind of ways will it shape your cost structure? Do you think that there's any kind of efficiency tailwinds that you guys can reap over the next year or 2? And then I have a second question as a follow-up that I'll get to.

Yes. I think the -- you hear about -- I grew up on the technology side of the business, the digital side of the business. So I hear often about AI helping from a routing and saving on logistics costs and freight costs. I think there could be an opportunity there. I am more focused on the margin opportunity and how allocation and replenishment will work coupled with AI. Every time I walk into a store, I see 3 or 4 things that I know right away, we should change about that store given the customer, the weather, the size of the store. I can't do that at scale. We can't do that at scale.

So what I'm most excited about is less markdowns and better product allocation, style allocation based on the individual attributes of the store, not a cluster, not all the stores in Florida or Arizona or the Northeast. But with the scale and the speed of AI, I think we're going to be able to allocate better at an individual store level and have less markdowns and more margin opportunities.

So that is -- and we're doing many, many other things with AI within the company. We just had a town hall last week. Every town hall, I bring up a partner from the store support center and highlight the work they were doing with AI. This particular meeting, it was our Director of Allocation and how she's using it to look at some of these data center builds and figure out where we might need more work boots. So the company overall has really embraced AI. But if I had to pick a piece of it that I'm most excited about it's allocation.

Okay. I guess I'm not sure how much you guys want to expound on that. But of all the apparel retailers we cover, most of them do not have a direct read-through from the AI build-out, the CapEx build in AI because most people don't sell products that you can wear that in any way kind of circle the current build of AI. But you guys do, you make work boots. It seems fairly germane to the cycle we're walking into now. To the degree that you care to expound on it, how do you see that opportunity playing out?

Sure. We have always had a B2B business where we would sell to oil and gas firms, construction firms, really bulk orders to someone who might want to outfit his entire team in work boots. More and more often, those are data centers. And our -- one of the adjustments I made coming in as CEO was to reinvigorate our work boot business, our work business overall. And we've had 5 quarters of improving comps in work boots. We're at roughly double-digit comps in work boots now.

And we have recently rebranded our commercial or B2B business, Boot Barn Workforce. And so Boot Barn Workforce is now a digital platform that we are rolling out alongside the business that has occurred in stores, and we're going to go after data centers as well as traditional construction firms and oil and gas, but really try to build this B2B business. You'll see marketing on Meta and on LinkedIn for Boot Barn Workforce. We have a sales team whose job is to kind of drive sales with those different firms. And we're mapping all the different data centers and where they are at what phase in their life cycle they are.

When they're clearing dirt, you need regular work boots. When they're building the 4 walls, you're looking at comp toe or steel toe work boots. And when they're racking and putting in electrical, it's our FR clothing for arc-resistant protection that is required. So when tying this together back to the allocation piece of it, we'll even look at how a particular store might shift in the inventory levels of each of those 3 based on where that data center is in its life cycle.

Very, very interesting, very seemingly very unique for apparel. All right. Let's pivot and talk a little bit about pricing, cost, that kind of thing. Last, we heard on promo and pricing, promo levels have been rational even in women's boots. You guys are expecting AUR growth and flat to 1% transaction growth as far as I remember. Have those dynamics changed at all? Have they changed your pricing philosophy or at least shown where you can more easily take consistent price?

Not really. Last year, we were dealing with the impact of tariffs on the business, and we had price increases from our third-party vendors that we passed through to the customers, and those are what were generating the AUR increases now as we cycle those or as we get close to cycling those that happened almost a year ago. On the third -- on the exclusive brand side of the business, we were working with our factories through the tariff environment, and we had some price increases related to those. But I think that's all pretty well baked into the landscape now. We expect the AUR, as you mentioned, up 2% to 3% this year. And -- but as we look at price increases this year, it's really back to kind of a normal level of much more moderated price increases than what we saw a year ago, which is good.

And is it fair to say that the pricing we should expect in the second half of the calendar year should be fairly similar to the first half of the year? Or will there be continuous?

Yes, it should be very similar to what we had in the first half of the year.

Okay. One of the other ways you guys stand out, at least to me, is the way you talk about freight management and expense management around freight. You spoke earlier about how you've renegotiated your contracts, you've actually found room for tailwinds in freight, whereas everybody else seems to be reporting pretty serious headwinds. How much of that was driven by scale specifically? And does that open the door to any other opportunities for savings with other partners as it pertains to finished goods, tech, advertising, anywhere else you can leverage scale?

Yes, all of those things. Anywhere we can, we're revisiting contracts, working with suppliers and vendors to get better rates as we grow and we've doubled our sales over the last 5 years or so, we have more purchasing power, and that's enabled us to get better discounts. And we've gone back to whether that's a third-party vendor who's selling product to us or boots to us or in the situation we're talking about freight, it's going back to the logistics partners internationally and domestically and renegotiating those rates where we can. And so getting better discounts is really a part of what we're going after right now.

And for this year, it's been very beneficial to us. We renegotiated some contracts a little less than a year ago, and we're seeing the benefit of that now where we've got some discounts that year-over-year are allowing us to offset some of the wild fuel increases that we've seen more recently. And so anywhere we can, we're looking for opportunities to use the scale and the size that we've grown to, to get better rates.

Okay. That sort of feeds into the question about comp leverage points and how that informs margin, things like that. I guess how do you balance the pursuit of new door growth with the resulting occupancy deleverage? Obviously, the new store growth is very productive, but I'm curious about that dynamic. And then are there opportunities to offset costs elsewhere in the margin structure or to expand the margin elsewhere that could help address the magnitude of deleverage? And how would you characterize the dynamism or whether or not -- how static or variable they are at the 12% to 15% expansion from a store growth standpoint?

Yes. So we really -- every store in the chain is 4-wall EBITDA positive. And so as we open -- we've opened roughly 100 stores over the last 12 months. And so that's a really nice model for us to generate some additional profit dollars as we've got those stores open. If you look at our leverage points and the profitability, we -- this year, if you exclude the tariff refund benefit for a second, we leverage -- we expect to leverage our operating margin at a 3% comp, and we've guided the year at the high end of the range at a 4% comp. So expecting to see some nice EBIT margin expansion of roughly 30% at the high end -- sorry, 30 basis points at the high end of our range, excluding tariffs.

And so yes, there is some deleverage related to opening that many new stores. And when a store is opening at 75% productivity of what a mature store does, and that just creates some pressure on that line. But if we look back at the last 6 years, we've grown our merchandise margin rate more than 600 basis points or 100 basis points a year. This year, we've guided that at 60 basis points. And so that helps us offset almost all of that buying and occupancy deleverage.

And then at the operating expense line, at a 1.5% or 2% comp being able to leverage those expenses is something that allows us to get that EBIT margin expansion. So it doesn't really play into the equation when we're looking at new store sites and the number of stores we're going to open, it's really looking at that -- those individual stores and what does that add to the portfolio of stores and how does that help us grow profit as a company, not necessarily concerned about the occupancy rate for those new stores because we know that over time, those will fix themselves as they grow and mature.

Right. To new stores, I think you've spoken before about how new stores have been performing better over time. I guess what exactly is driving that? Is it a matter of assortment? Is it layout? Is it anything that can be retroactively applied to the legacy fleet over time?

Yes, it's a great question. If you look back to the IPO, we've grown the volume probably almost double what a new store used to do coming out of the gate versus what it does today. And I think there's a variety of things that goes into that. I mean the brand is stronger. The store operations team has learned quite a bit, and they do a phenomenal job, the merchandising, all the things that the marketing has been elevated. And so all of that helps the new store opening.

But then really, the site selection is also very key to that. We've had some minor shift, I guess, in the sites that we select over the years, we're more into a power center with other stronger tenants. If you went back 10 or 15 years, we're opening up the side of the freeway on an easy access for the work customer going to and from the store. And so I think being a little bit more in that mainstream center has been very helpful to us. And so finding the right site has been something that's key to that strategy.

Okay. Perhaps this is related, but you've also mentioned that the new stores operate with, I think the language was controlled costs, more controlled costs. I'm curious about how those efficiencies have been realized. And similarly, how retroactively could that be adopted?

Yes. So yes, we're controlling the cost. We've been negotiating, again, back with vendors, but fixture vendors and with the general contractors that we're putting out multiple bids and trying to keep the cost down there. About 1.5 years ago, we started implementing some efficiencies on the building management system and making sure that we're being efficient on the utility costs. And so there's some upfront costs that we put in the store that pays back in 3 years or less and is good for the environment. So that's been helpful on the cost side of things.

Retroactively, we are going in and implementing that in some of the stores. And back to your earlier question, we do a number of relocations of stores every year. And so as leases expire or get close to expiration, we're looking at opportunities where maybe the market has shifted within a certain area. And if we can be in a better location, we can see a pretty nice comp lift in those stores. Particularly, we're looking to relocate stores that are already outperforming the chain average. And if we can get those into an even better market or part of the market, then that's been a nice win for us.

We're also focused on the fleet and making sure that we've got all the necessary repairs and the uplifts and whether that's paint and boot fixtures and flooring in a lot of stores or it's a bigger remodel. We want to make sure we've got the right balance there. So there's some opportunity that we have to either lift the comp or at least keep the stores brand right as we're building the brand across the country.

Got it. Okay. Maybe turning back to some of the category specifics. In the women's business, which we touched on slightly, I'm wondering what differs between today's environment in that category? And maybe how is it different than fiscal 2024 when you guys are up against many years of building comp in the ladies Western boot segment?

Yes. The women's Western boots, the place where we are a little bit softer is in the leather bottom boots. So these are boots that have a leather -- not the shaft of the boot, but the actual sole of the boot is leather versus, if you imagine a rubber-soled boot. And that's where we're seeing the challenge. So it's more on a traditional western silhouette, a boot that is handcrafted in Mexico. And that's, in some ways, we can react quicker and get down to our factories in Mexico from an exclusive brand standpoint and ramp up production and try different styles. So that's kind of where we're -- the merchandising team is kind of hustling and working to improve the women's Western boot business.

Got it. Pivoting to work boots. I think this is kind of a pet project of yours, right? I guess can you dive into what the company has done specifically to get -- to generate, I mean, 5 consecutive quarters, at least of growth in the work boots category. Where do you envision that category going into as part of the total business over the long term? I guess, maybe the data center thing plays into this.

Sure. It absolutely does. At our last count, there were 2,100 data centers being built in some fashion right now domestically. So it will be somewhat of a tailwind to the work business. We did 3 things to reinvigorate the work business. We changed the way we merchandise boots. They were merchandised by style, not by size, and this was a heavy lift, but we remerchandised every single store. And so if you're a size 9, you walk in and you see all the size 9s that are lace-up or all the size 9s that are pull-on by safety toe, non-safety toe, which made it easier for the customer, and we kind of scratched our heads and wondered why we hadn't done it sooner.

But the secondary effect of that was the store partners became so much more comfortable selling work boots and being in the work boot aisles. The way that work boots used to be merchandised, if they didn't have the style the customer was looking for and they normally come in and say, I want another pair of these is typically what would happen with work boots. They would have to then know something about the next style over and the style after that and be able to speak to it. And it's intimidating. I have been in stores and have done it.

Now they can take the customer and go, I'm sorry, we don't have that particular style, but here are all the other size 9s, which one of these appeals to you? That conversation gets so much easier. So we're thrilled with that piece of it. We brought in new brands and new styles from third parties that are performing incredibly well in work. We've built up the sales team on Workforce, and we continue to see that B2B business grow. And then we have been leaning more towards country, and I'm thrilled that we did it, but we were focused on that country lifestyle customer for a few years and the fashion customer before that.

So from a marketing standpoint, we've now pivoted to some true blue-collar kind of trades marketing. When I think about the Boot Barn customer and kind of the legacy of Boot Barn and how the customer views us, I want them to be proud of the work they're doing and the life that they are building. And so much of our advertising revolves around the pride in being a tradesman and working in anywhere in the trades, whether it be in energy or data centers or traditional construction.

Okay. Pivoting to denim, you mentioned a little bit about the fashion versus work. I know that denim is one of these nebulous categories where it's used both at work and it's used also as fashion. But as Boot Barn becomes more of a denim destination, I guess, how quickly can the business respond to the fashion winds, I guess, given that like silhouette preferences and cuts and things like that shift. There's probably -- I mean, I assume a geographic kind of preference. So it seems like quite like a complicated checkerboard that shifts around.

It can be. To break down our denim business or our apparel business, men's apparel is roughly 20% of our business. Women's apparel is roughly 10% of our business. Within women's apparel, half of that is denim. So roughly 5% of our overall business is denim. If we looked at that denim, we have had some new styles come in that are a wide leg trouser, a riding jean, but in a wide leg silhouette, but it's 1 or 2 styles.

If we looked at that 5% of our business on the women's denim side, 90% of it is traditional boot cut jeans. And denim is having a moment in mainstream. I was doing my own channel checks a few months ago, and it's kind of a sea of sameness of everyone selling -- everyone from Walmart to Target to all the typical teen denim retailers selling that wide leg denim. It was kind of everywhere. But we are rooted in Western lifestyle and Western culture, and most of what we sell is still boot cut. So we'll get some freshness in there, to be sure. And we've got some great new silhouettes, but it's a tiny, tiny piece of our business.

Okay. I guess keeping with the theme of the fashion versus the replenishment-based shopper, I guess to the degree you can disaggregate between the 2, how would you characterize the replenishment cycle for a work boot or a work product versus the purchase frequency of a lifestyle customer?

Sure. The purchase frequency is similar. We say that we know that our customer shops roughly 2 times a year. That work customer, again, because I've seen it personally, it's usually a typical tradesman he comes in and he throws the boots on a counter and says I want another pair of these. So theirs is very much the same product in many cases, over and over again.

When it comes to Western or country lifestyle, the denim is very much replenishment in the Western side of things. Folks keep buying the same styles over and over again from all the traditional Western denim retailers. And then I think that second purchase on the Western side is we've really become a little bit more of a lifestyle retailer, a little bit more of a one-stop where that customer can come in there and they can get a sweater, a pair of jeans, outerwear, boots, belts, hats, accessories, pick a category. And so it's twice a year for both the work side and more of the Western or lifestyle side just for very different reasons.

Okay. It sounds like you're alluding to the idea that the basket has expanded, the number of items per purchase has expanded. I heard you guys speak a little bit about the trade-up that you guys try to do in store. If you could expand on how exactly that's been disseminated across the stores and then how productive that's been?

Yes. The -- we're on with the field every week and every week, the field is focused and talking about units per transaction. So it's absolutely a focus of the field. It depends on the product. If we're looking at boots, the easiest add-ons are a matching belt or boot care. It's kind of a no-brainer. We have our own Boot Barn branded boot care that we retail. When it comes to jeans, you try to add a top. So we look at what is typically in a basket. We look at the basket composition from a transaction standpoint, and then we use that.

We're going to be in Denver with all of our store managers next week, close to 600 store managers. And UPT is one of the classes that's being taught, and they'll kind of go through all the different -- if someone is buying this, they're typically also adding this, and it depends on what that first item is, right? So we coach the stores and the teams on how to drive that UPT up.

Okay. We have a little bit of time left. I think maybe we can get one question squeezed in. We haven't talked about exclusive brands may as well now. I guess if you could speak very quickly to the work you've done to grow that business, how you think about the balance between third party and your own and why 50% penetration is still the right?

Yes. We've seen incredible exclusive brand growth over the last several years. We're sitting just north of 40% at this point. The only reason we've guided it flat for the remainder of the year is the success we're having with work boots and the third-party work boots. If not for work boots, we would be continuing to grow exclusive brands. So the rest of the exclusive brand business is doing -- is performing quite nicely.

We're a house of brands. We're a retailer. We have to have the brands that the customer wants. And we've created real brands with our exclusive brands. Cody James or Shyanne or Idyllwind can stand next to all the other brands in Western, and we're incredibly proud of them. But we have to acknowledge that we don't want to be only Boot Barn exclusive brands. And so 50%, I think, is the right balance. North of 50% makes me uncomfortable, but I'm fully confident we can get to that 50%, and that's where we're headed.

Fantastic. I don't think we have time for another question. We're not to run the clock either. I think that's enough for now. Thank you guys very much appreciated.

Thank you.

Thank you.

Good day, everyone, and welcome to the Boot Barn Holdings, Inc. First Quarter 2027 Earnings Conference Call. As a reminder, this call is being recorded.

Now I would like to turn the conference over to your host, Mr. Mark Dedovesh, Senior Vice President of Investor Relations and Finance. Please go ahead, sir.

Thank you. Good afternoon, everyone. Thank you for joining us today to discuss Boot Barn's First Quarter Fiscal 2027 Earnings Results. With me on today's call are John Hazen, 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. 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 first quarter fiscal 2027 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 John Hazen, Boot Barn's Chief Executive Officer. John?

Thank you, Mark, and good afternoon. Thank you, everyone, for joining us. On this call, I will review our first quarter fiscal 2017 results provide an update on current business and discuss the progress we have made across each of our 4 strategic initiatives. Following my remarks, Jim Watkins will review our financial performance in more detail, and then we will open up the call for questions.

I'm encouraged by our start to fiscal '27. First quarter results exceeded our expectations and reflected broad-based strength across the business. Revenue increased 18%, driven by the opening of 27 new stores during the quarter and consolidated same-store sales growth of 4.7%. Merchandise margin exceeded our guidance, driven by stronger-than-expected product margin and the recognition of tariff refunds during the quarter. Disciplined expense management also contributed to first quarter results with our SG&A rate coming in better than guidance even as we invested in marketing initiatives, including our sponsorship at the Stagecoach Music Festival and 28 grand opening events.

As a result of the factors just mentioned, first quarter earnings per diluted share increased 32% over the prior year to $2.29, including a $0.38 benefit from tariff refunds. Our first quarter results reflect the outstanding execution by our team and the strength of our business. I am confident we are well positioned to deliver continued growth throughout the remainder of the year.

Now turning to current business. Through the first 4 weeks of the fiscal second quarter, consolidated same-store sales are approximately flat. While this represents a moderation from our first quarter performance, it was largely anticipated as we lapped the strongest sales month of the second quarter from last year. July sales did, however, come in below our expectations due to a couple of factors that were not contemplated in our original outlook. We believe fewer Western lifestyle stadium events and concerts together with the temporary impact of World Cup matches on customer traffic during televised games weighed on our performance during the month. Despite these factors, we remain confident in our outlook for the balance of the year.

I will now spend some time discussing each of our 4 strategic initiatives. Let's begin with new store growth. We opened 27 stores during the first quarter, ending the period with 566 locations across 49 states. New store openings continue to exceed expectations across the country and are projected to generate $3.2 million in average annual revenue with an investment payback of less than 2 years. We remain on track to open 70 stores this fiscal year, supported by a new store pipeline. As we continue expanding across the country, we believe we are well positioned to grow the Boot Barn brand for many years to come as we progress towards our long-term opportunity of 1,200 stores across the United States.

Moving to our second initiative, same-store sales. First quarter consolidated same-store sales increased 4.7%, with brick-and-mortar same-store sales increasing 3.8%. The store comp growth was driven by a 3% increase in average unit retail and approximately flat transactions.

From a merchandising perspective, we delivered broad-based growth across most major merchandise categories. Men's Western boots increased mid-single digits and ladies Western boots decreased mid-single digits as they cycled mid-teen comps in the prior year. Men's and ladies apparel increased high single digits, led by double-digit growth in denim, which also cycled exceptional growth last year.

Our work boots business delivered high single-digit comp growth during the quarter, which marks the fifth consecutive quarter of growth in this category and the strongest growth over the past few years. I am pleased to see the continued acceleration in the work business as the team made a concerted effort to reinvigorate the category last year. These efforts, including enhancements to our in-store merchandising and increased marketing focus and investments in our key third-party brands to ensure we offer the right assortment for our work with customers.

Moving to our third initiative, omnichannel. In the first quarter, e-commerce comp sales increased 13.4% driven by double-digit growth on bootbarn.com. In addition to driving online sales growth, our omnichannel capabilities remain a meaningful competitive advantage and reflect our team's commitment to operate as a store's first organization. Today, a large portion of our e-commerce orders are fulfilled from our stores, enhancing merchandise margins while providing customers with access to a broader assortment of inventory.

We continue to see strong adoption of our Buy Online Pickup in Store and Ship to Store offerings, which drive store traffic, reduce fulfillment costs and enhance customer engagement by delivering a more seamless shopping experience across our digital and physical channels.

Now to our fourth strategic initiative, merchandise margin expansion and exclusive brands. I am pleased with the team's continued execution of our merchandise margin strategy. Excluding tariff refunds, first quarter merchandise margin exceeded our expectations, driven by strong product margins. While exclusive brands remain an important contributor to merchandise margin expansion, the exceptional performance of our work boots business, driven by strong demand for third-party brands resulted in a lower exclusive brand penetration during the first quarter than anticipated.

We expect to strengthen our third-party work boots business to continue. And as a result, we now expect full year exclusive brand penetration to be approximately flat to slightly down compared to the prior year. We view this as a positive outcome as the continued strength of our work boots business reflects healthy customer demand that drives incremental sales, attracts new customers to the Boot Barn brand and further strengthens our position as the leading destination for work boots.

Importantly, despite the modest change in our exclusive brand penetration, we now expect full year merchandise margin to expand by approximately 60 basis points, excluding tariff refunds. Our updated merchandise margin guidance is supported by multiple margin expansion drivers, including buying economies of scale, improved full price selling, supply chain efficiencies and sourcing initiatives.

I would like to now turn the call over to Jim.

Thank you, John. I want to begin by explaining the tariff refund impact on our first quarter results and full year guidance. Our first quarter earnings per diluted share benefited by $0.38 due to tariff refunds. This is comprised of a $14.7 million benefit to merchandise margin worth 250 basis points. We also received $0.5 million of tariff-related interest income.

Looking forward, we expect tariff refunds to benefit second quarter merchandise margin by $2.4 million or 40 basis points, resulting in an estimated $0.06 benefit to earnings per diluted share. For the third quarter, we expect tariff refunds to benefit merchandise margin by $0.7 million or 10 basis points, resulting in an estimated $0.02 benefit to earnings per diluted share. For the full year, we expect tariff refunds to benefit merchandise margin by $17.8 million or 70 basis points. We also expect a $0.5 million benefit to interest income. These factors result in an estimated $0.46 benefit to earnings per diluted share.

Now turning to first quarter results. Net sales increased 18% to $594 million. Consolidated same-store sales grew 4.7%, driven by a 3.8% increase in retail store same-store sales and a 13.4% increase in e-commerce same-store sales. Merchandise margin increased 220 basis points during the quarter. The increase was driven by 250 basis points of tariff refunds and 60 basis points of product margin expansion, partially offset by a 90 basis point headwind from lapping low freight expense in the prior year period.

Buying, occupancy and distribution center costs deleveraged by 90 basis points primarily due to occupancy costs associated with new store growth. As a result, gross profit rate increased 130 basis points compared to the prior year.

SG&A expense was $149 million or 25.2% of sales, an increase of 10 basis points from the prior year period and 30 basis points better than our guidance. Income from operations was $91 million or 15.3% of sales. Earnings per diluted share increased 32% to $2.29 compared to $1.74 in the prior year period.

On a consolidated basis, inventory increased 16% year-over-year to $900 million and increased 1% on a same-store basis. The increase in total inventory reflects the growth needed to support new stores, exclusive brands and inventory purchased at a volume discount.

During the quarter, we repurchased more than 158,000 shares of common stock for an aggregate cost of $25 million under our $200 million share repurchase authorization. This brings cumulative repurchases, which began in fiscal '26 to $75 million for approximately 445,000 shares. We ended the quarter with $139 million in cash and zero drawn on our line of credit.

We are pleased to announce that yesterday, we completed an amendment to our revolving credit facility. This amendment doubles our capacity on the line of credit to $500 million and extends the maturity date to 2031.

Now turning to our raised outlook for fiscal '27. The supplemental financial presentation we released today outlines both the low and high end of our guidance ranges for the full year and the second quarter. In my following remarks, I will focus on the high end of those ranges. Our updated guidance includes an expected benefit of tariff refunds.

For the full year, at the high end of our guidance, we expect total sales of $2.6 billion, representing 16% growth over fiscal '26. We continue to expect same-store sales to increase 4%, including a 3% increase in retail store comps and 13% growth in e-commerce comps. Merchandise margin rate is now expected to be approximately 52.2% of sales, representing a 130 basis point increase year-over-year, including 70 basis points from tariff refunds, 50 basis points of product margin expansion and 10 basis points of freight improvement.

We now expect gross profit rate to increase by 60 basis points year-over-year to approximately 38.7% of sales. We expect to achieve 40 basis points of SG&A leverage. We now expect income from operations of $374 million or 14.3% of sales, an increase of 100 basis points over last year. Net income is projected to be $281 million with growth in earnings per diluted share of 26% to $9.23. We continue to expect net capital expenditures to total $130 million and we anticipate an effective tax rate of 25.7% for the remainder of the fiscal year.

Now turning to our second quarter guidance. We expect total sales at the high end of our guidance range to be $582 million and a consolidated same-store sales increase of 2%. We expect merchandise margin of approximately 51.8% of sales, representing a 140 basis point increase year-over-year. This guidance reflects a 90 basis point improvement in freight expense, a 40 basis point benefit from tariff refunds and 10 basis points of product margin expansion on top of 130 basis points of product margin expansion in the prior year period. We expect a gross profit of approximately 36.6% of sales.

SG&A for the second quarter is expected to be approximately 25.1% of sales, representing 20 basis points of leverage compared to the prior year period. We expect income from operations of $67 million or 11.5% of sales and earnings per diluted share of $1.65 compared to $1.37 last year.

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

Thank you, Jim. As we look ahead, I remain very optimistic about the opportunities in front of us. We have built a strong foundation, continuing to execute on our strategies with discipline and believe we are well positioned to deliver another year of profitable growth. None of this would be possible without the dedication and passion of our team members across the country. Every day, they bring our values to life through their commitment to our customers and to one another, and I want to sincerely thank them for everything that they do.

Now I would like to open the call for questions.

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

Great. So John, comps in June exited the quarter up 5.4%. That was your best month of the first quarter. Could you help bridge the delta between June and July comps, maybe specifically the impact you think from some of the transitory impact on traffic? If you look at e-commerce, it's up double digits in July, or just any way to parse out the underlying trend in July, maybe outside of days that you believe were impacted from some of the transitory events?

Yes, sure. Thanks, Matt. The -- if we look at the major merchandise categories, particularly in Western in July, we saw that deceleration across all major Western categories. It was more pronounced in women's than men's boots to be sure. But there was a traffic issue across all geographies in July. So the good news is, from my perspective, is AUR continues to remain healthy. Our consumers seemed to be healthy. And it was a traffic issue around the things we described, a lack of stadium country music tours and the World Cup as a distraction in the month.

What's important to note, it was across all geographies, again, so there wasn't something specific around whether in a particular geo or something else going on oil, et cetera. And the work business was incredibly healthy. Both the work apparel business and the work boot business were in the high single digits, which showed the resilience resiliency of our needs-based customer and a bit of a slowdown in traffic in what is our -- one of our smallest months of the fiscal year.

Great. And then, Jim, as a follow-up, the drivers of outperformance within your first quarter product margin, it was 60 basis points expansion. I think the plan was 10 basis points of expansion. Just if you could break down full price selling private label, the drivers of the outperformance in first quarter product margin? And then how best to think about puts and takes for the second quarter and back half of the year?

Absolutely. You characterized it well, Matt, the product margin expansion was a beat to what we had guided for the quarter. And it really comes down to what we've been talking about over the last several quarters with better buying economies of scale and the product that we're bringing in at discounts, the product that we're selling at full price, the job that the merchandise team has done in getting the right product in the store has really benefited the product margin, particularly as we got into the first quarter.

As we look to the merchandise margin guide in the second quarter, we do have a breakdown of some of the components of that on Slide 14 in our presentation. But we're expecting freight benefit of 90 basis points, and that was up against some pretty low freight last year. So it's really more of a comparison against the prior year than it was being extremely strong this year, the tariff benefit of the tariff benefit of 40 basis points is what we're guiding and then product margin benefit of 10 basis points in the second quarter, and that's up against really strong product margin benefit last year of 130 basis points. And I think I may be mischaracterized the freight improvement -- sorry, the freight improvement is 90 basis points in the -- is what we're expecting in the second quarter versus very high freight expense in the last year. Sorry for the confusion there.

Our next question comes from Peter Keith of Piper Sandler.

John, could you unpack the work boot strength, I guess, well, even work boot and work apparel. It's interesting. I know you've remerchandised work boots and maybe that's having some self-help benefits. There's also a CapEx cycle in the economy and you've got these data center build-outs. So do you think there's anything also on the macro front that's contributing to this category growth?

Yes. Great question. Yes. We -- as a reminder, we -- one of the adjustments I made coming in as CEO were to reinvigorate the work boot business. Some of the initiatives were to remerchandise it as you just mentioned, shift some of the marketing spend into the work business overall as well as market our exclusive brands from a work standpoint and not just a Western standpoint with those stand-alone sites. And the work boot performance I'm incredibly pleased with, it is across both pull on and lace-up to get to that high single-digit comp, which is great to see. It's not one or the other. It is more lace-up than pull on, so not driven by oil, if that question kind of comes up.

And the assortment between some new third-party brands that we brought in and going deeper with some great selling product with existing third-party brands has really beared fruit. So a little bit of a rebalance and that kind of affected that exclusive brand penetration as we had some great selling boots from third-party vendors.

When we look at the work apparel side of things, again, increasing positive comps over the last couple of quarters and as we got into July, high single-digit comps. It was a blend between FR and non-FR product as well. So that seemed broad-based and can't point to FR apparel in data center builds or electrification projects of those sort of things. But we do hear from stores when a big data center project comes to town, and people are working, they tend to shop at Boot Barn for those work needs. So we'll see pockets, but nothing that we have been able to kind of see in the product being bought in a broad based manner, that would say this is driven by that CapEx cycle, although I'm sure it's a piece of it, and we see it at individual stores.

Okay. That's helpful commentary. Maybe for Jim Watkins, a shorter-term question. Can you just help us understand how you framed up the Q2 guide? The compares after July you get quite a bit easier. So on a 2-year basis, I could argue things going to be a little bit better. But how should you come up with that 0% to 2% outlook?

Yes. You're right, Peter. The compares do get easier as we move throughout the quarter. As we look to guiding the second quarter, we followed a similar approach that we've used historically, and we really just took the July -- the 4 weeks business of July and applied back to the historical seasonality of the business to arrive at the sales for the balance of the quarter. But then what we did is we added about 1 point of comp to what that calculation showed us in order to reflect what we believe to be artificially low sales in July due to the points that John mentioned earlier.

So really looking at that July business, and forecasting that forward and then bringing that up a little bit. Had we used the June, July business and rolled that forward for the rest of the quarter, we would have gotten something higher than what we guided, but wanted to be fair to what we're seeing recently.

Our next question comes from Steven Zaccone of Citi.

I wanted to dig in on the commentary just about the deceleration in Western in the month of July, and you referenced more pronounced in women's. So maybe if we zoom out, what's your assessment of the longevity of some of the strength you've seen in the women's western side of the -- women's boot side of the business? Is there a concern that the compares are getting too difficult and some of the strength you've seen may not continue? And then when you look across the industry, have you seen anything from a promotion perspective or maybe the inventory is a little bit heavy, the industry will be heavy on inventory? Anything to call out there from that perspective.

Sure. Yes, I'll start with the promotions piece first. There -- the industry continues to be very rational we track promotions closely and haven't seen anything that really stands out, especially in -- really in all categories. There's been no shift in the promotional cadence within independents, Farm & Ranch or the other competition in Western and work.

When we look at the women's business, we see opportunity in -- we break women's boots down between leather and performance. And where we were seeing the larger slowdown -- or the bigger slowdown rather, is on the leather side of things. And performance has fared better. So we think there's a little bit of a shift going on from weather to our performance boots. We also believe there's opportunity in the leather category where we've had some boots I referenced on the last call that we're selling extremely well, and we're trying to get that -- those boots into more stores. Those are at price line at roughly $280 price point. So we really think that the women's boot category still has opportunity from a merchandising, a good, better, best standpoint.

July is -- again, it was a bit of an anomaly. It's not kind of a normal month, and we think there's still great opportunities and for the merchandising team for the store operations team, for the marketing team around how we approach women's boots, Stagecoach was new for us this year. under the Big Sky was our #2 in Montana for us, and both of those lean more towards the female customer. So while I've pushed the team on work and the work boot adjustment that I brought in, they also are always trying to kind of improve that women's boot business.

So we feel good about the women -- the future of women's boots. We don't think it was a trend. We don't think that there's any sort of inventory issue that is being reflected in promotional activity elsewhere within the industry.

Okay. The follow-up I had is just on freight, we're in an environment now where oil is going back up. So maybe, Jim, how do we think about freight on a maybe medium-term basis? It sounds like this year is pretty much locked in. But as we think about oil trending higher, is just a concern as we look into next year, potentially for freight cost for your business?

Yes. So the freight as we look forward, we'll just have to see what happens with the price of oil and fuel surcharges and that sort of thing. We're operating in the same environment as everybody else is. And as we get into next year, we'll have to see how that plays out.

We feel really good about the improvement in freight that we've modeled in for this year of 10 basis points. And given that we turn our inventory twice a year, we feel that, that's a pretty -- as you pretty locked in, I think is what you said, for this year. And that's really based off of those inventory turns. But then as we've talked about last quarter, some of the renegotiations that we've had with some of our logistics and transportation providers in getting those rates down and getting some better discounts. That have helped us offset what we've seen so far this year on elevated freight cost.

And I would remind folks that while we have seen container costs come up pretty significantly over the last few months, they're not nearly what they were a couple of years ago when we were dealing with things with COVID and people had -- I think we had 100 basis points of a headwind that year. We're not even close to those levels. So we'll see what the market brings over the next few months, but we're probably in a similar spot as others.

Our next question comes from Dylan Carden of William Blair.

In understanding July, I guess two questions kind of immediately arise. One, do you have line of sight into the country music calendar for the balance of the year? There have been some reports of major headline cancellation broadly in music concerts. And then outside of the World Cup, I guess, sort of as the series ended and in periods where there weren't games, were those periods in which you did see better performance?

I'll jump in first on the event calendar. August and September look similar to last year. So we don't see a shift in where the pent-up touring and events kind of got pushed into August and September. The best way to put it is August and September look similar to last year, and there has been some new tours announced with Garth Brooks and others over the last few days. So August and September, I would characterize as looking normal.

And your second piece of the question was around the World Cup and when there are games versus not games. Is that right, Dylan?

Series has ended now, right? I mean are you seeing kind of some recovery?

Yes. So really, the -- we're talking about a 4-week period in July, where we had a variety of things happening. I don't want to get into the day by day, week by week. But what I will say on the World Cup piece of it is that we did look at the data hourly transactions as games were occurring and seeing what was happening in our stores and seeing outsized declines in comp sales during those periods of time. And so that's what led to John mentioning that as being one of the things that was -- we believe, was impacting July.

I think the -- we just talked about the concerts and events and the World Cup games. Really, the bigger piece to remind everyone of is that July last year was a plus 11% comp that we're up against. And so we're talking about a 4-week period of time, we're up against really tough strong comps and had a couple of event shifts and things that didn't happen that happened last year plus some distraction in that 4-week period of time gives us pretty good comfort in looking forward to the rest of the quarter, where we're up against easier comps and don't have or are not expecting to have at least the same kind of distraction as we just saw. We're feeling pretty good about the guide for the rest of the quarter and this being a short-term hiccup.

And then on the private label work boot strength in third party, is that -- would you expect private label penetration to go down because of mix shift into work? Or is it that you're being somehow less competitive in work?

Yes. It's a mix of both. I think we're having really nice success with third-party brands and work boots. And again, when -- as an example, in July, with July comping essentially flat and we're high single digits in work boots, I think it's also the work boot over penetrating, which is great. It was something that I wanted to adjust and pursue from day 1 coming in as CEO, and I'm happy to see the performance we've had in all of the adjustments we've made to drive work boot comps and have a high single digit in Q1 and have that carry forward into July. So I think it's a mix of the 2.

And just to clarify, the -- if you exclude work boots and the exclusive brand penetration, we had growth during the quarter. And so that's the exclusive brand business is performing quite well.

Our next question comes from Jonathan Komp of Baird.

John, I want to follow up and ask whether there's any specific initiatives that you may be contemplating either with merchandising, your own brands, third-party brands or any of the categories that you think have potential to drive incremental business that could help inflect the trends that you're seeing?

Yes. There's a couple of things we're doing. I mean, with the merchant team once a week and 2 key initiatives worth calling out are, one, around this leather women's boot business and getting some additional inventory, additional styles and additional colors in some of the, what I would characterize as the boot sitting in the best side of good, better, best. So they are actively trying to get us as much inventory as possible in boots that are selling very, very well at a relatively high price point. So we -- it's -- it -- there's some great stories in the women's leather business and the merchandising team is all over it.

The other component is denim. And we had made some changes to the men's denim merchandising last year. And as we set the back-to-school floor set the start of the back-to-school floor set here in July, we've shifted the women's denim presentation, moved some of the basic core denim to the denim wall, put some of the more premium styles upfront, some of the brands remerchandised. And so if you're looking for the kind of that core women's denim from a replenishment standpoint, and we had already done this on the men's side, you'll be able to find it in that denim wall in women's and then we're going to have more compelling product stories around denim and more interesting styles upfront on the nesting tables and on the fixtures.

So on the denim front, it's on women's denim is where we're making the changes. And then on the boot side, again, there are some real winners on women's leather boots that we are pursuing with our third-party vendors.

Okay. Great. That's helpful color. And then maybe as a follow-up, Jim, I think previously, the impression was maybe there was less room for full year earnings upside relative to some of the past years for a variety of reasons. Given the underlying raise here, even with the softer first few weeks here in Q2, can you just comment maybe on where you're outperforming and the potential to deliver strong earnings at or above your guidance here for the rest of the year?

Yes. So really looking at the transactions, we've guided the year flat to up slightly in transactions. And so any opportunity we have to improve the transactions and use our traffic counters that we now have in the stores to help drive behavior and sales behavior and then improve the transaction is that something that we can look at. One of the things that was really strong during the first quarter, and you can see that in the sales numbers versus the comp numbers our new stores have been performing extremely well. We're pleased with that.

And so we did flow through some of the -- we saw a nice flow through in the first quarter or to the bottom line. And so as we look to the expenses and making sure that we're continuing to control expenses and being smart with our store labor and other expenses, there is some potential upside that we would look to see as we get through the year and if we're able to drive transactions and get some sales to be able to flow through some nice earnings.

Our next question comes from Jay Sole of UBS.

My first question is just talk to us about how you talked about including the tariff refund in the guide versus potentially excluding it. And what are you assuming for a tariff rates for the rest of the year?

Yes. So if you look at the second page of the earnings release, we laid out what we expect to see through the balance of the year. And really, the way that flows is based upon the accounting. We've received the cash in the door as of the start of the second quarter or near the start of our second quarter, and so the way the P&L impact is going to be recorded over the course of the year based off of our inventory turns and when we actually paid the tariffs is how we account for that. And so that's what's laid out on that -- in that table on Slide 2.

And then as we look to the balance of the year and what's included, we've really contemplated the most recent 10% to 12% tariff rate in our guide for the balance of the year. And if there are shifts to those rates, then we will adjust our pricing accordingly similar to what we did a year ago in navigating the tariff environment. That's our expectation on how we would plan that. And so not really a change in what we had 2 months ago when we reported what we had considered with the tariff rates as we look out for the full year.

Got it. Maybe -- and then I just want to ask about real estate. How are you feeling about the comp leverage point going forward? Is there any change from last quarter? And if you think about 70 stores for the year and going forward a similar number, how focused are you on hitting a number versus saying, say, "Well, if the real estate deals aren't right, then it's going to be 65 or if they're really, really good, maybe at 75"? Can you just talk about your flexibility around that and sort of whether you're priority a hitting a number in terms of openings or if it's really about real estate and trying to get that leverage point down?

Really, the goal is to open the best stores that we can open and not settle for stores that are going to be subpar. And so we've got the goal out there of the 12% to 15%. We like the pipeline as it's laid out for the balance of this year. We feel good about our guide for this year. As we get into next year, we expect to be within that range. But as we evaluate real estate, we'll be able to lock into a number that's a little bit more precise than what we have out there for next year and as we lay out guidance.

As far as the leverage points go, we're in a good place with our occupancy and occupancy rates. And I know that the 10% leverage point on buying and occupancy and distribution center cost is often an area of focus. But as we look to the EBIT rate expansion, we feel great about that, particularly this year with the more recent tariff impact or health in the business. It's a 240 basis points. We will have expanded EBIT over a 3-year period. If you exclude the tariffs, that's 170 basis points of expansion over the 3-year period. And so we think we've got the nice merchandise margin drivers that can help offset that. And a reminder that every one of our stores is 4-wall EBITDA positive. And so while there's a little bit of rate pressure with the new stores, we're able to contribute earnings to the bottom line.

And one thing I'd just add, we've opened 93 stores over the last 12 months. a 20% increase in store count over the last 12 months. And so the math on that is just going to put some pressure on the occupancy rate, but that's included in the design of what we're doing here with opening these stores.

Our next question comes from Janine Stichter of CTIG (sic) [BTIG].

I want to go back to the exclusive brand penetration. You're sitting here this year at a bit over 40%. I know in the past, you've talked that maybe surpassing 50%. Does this change at all the way that you think about the long-term opportunity? And then also I was just curious what you're seeing on some of the new e-commerce initiatives in the past, you talked about TikTok and also some of the branded e-commerce sites.

Yes, absolutely. I still believe 50% is the right number. I don't think as we stand today and the brands that we have, that it is north of 50%. I think we're a house of brands. We're a retailer. But I believe 50% is the right number, and I still have full confidence that we will get to 50% over the coming years. So this is a rebalancing due to some wins in the work boot space, which is good news.

As we look at the exclusive brand sites, they continue to gain traction. The traffic or sessions as well as the sales coming from those sites continue to comp upwards. Cody James is still, given that it's our biggest brand, makes sense is the biggest success among those. So I'm still very pleased with the storytelling and the brand building that we're able to achieve with those sites. The sales that come from them are a nice after effect, but we've got millions of sessions or visitors coming to those sites and learning more about Cheyenne or Cody James or Hawks and they ever would on a product detail or a product listing page on bootbarn.com. So thrilled with the amount of traffic we're getting to those sites.

TikTok Shop continues to be great. We are selling both our own brands on TikTok Shop as well as certain third-party brands have partnered with us, which has been exciting. And we continue to see nice traction on TikTok. It continues to grow very quickly in the U.S., as I'm sure many of you know, I believe it's the size of eBay right now in terms of sales. So TikTok has become a pretty broad and large marketplace. And we continue to use everyday influencers, as I called them last time. I've seen this term kind of bandied around lately of nano creators or nano-influencers, everyone seems to be leaning into these influencers with less than 10,000 followers. We're partnering with different sororities going into rush tax season this year. So all is going well with Tick Talk shop as well, still very bullish on it.

Our next question comes from Max Rakhlenko of TD Cowen.

So first, can you speak to the health of your customer and whether some of the macro pressures from higher gas and other costs may have a greater impact on the more rural economy than the broader consumer? As you did mention, I think that traffic in July was down across all regions, which feels like it's maybe a bit more of a broader situation.

Yes. Again, July, 4 weeks, summertime World Cup distraction, it was broad-based. You're absolutely right. And I don't believe it was gas prices or something macro. When we look at our customer data, and we do this at the end of each quarter. We're not seeing a K-shaped customer. We're not seeing the lower income customer cutting back versus our higher end customer. It was very even in terms of subdued traffic in the month of July for, we think, the reasons we described. So we're not seeing anything that would say the lower-income customer is cutting back on trips or purchases.

And as a reminder, we're very much a needs-based business. And if you need our product to work, it's going to be one of the last purchases you cut. But nothing we're seeing would indicate either by geography or income level that it's a particular group of consumers that have shifted their behavior. I think it's more -- the month of July was just a little bit odd for a variety of reasons.

Got it. That's helpful. And then on in-store transaction trends more broadly, can you speak to the mix of new shoppers versus returning shoppers? And then can you discuss the success that you're having with the new websites in getting new shoppers to visit stores as I think that's one of the key sort of strategies to continue to drive in-store transactions?

Yes. I'll start with the sites. Given -- and I just quoted this with Jean, the millions of sessions we have on those sites, there's as with most e-commerce sites, the conversion usually hovers somewhere around the 2. Most of those people aren't shopping on the site. We're trying to drive that traffic to the stores to drive the storytelling on the site, I love the brand, where can I find it? Well, you can buy it at Boot Barn or Sheplers country fit or Amazon, TikTok. The best place to buy it is in our 550-plus stores. So we're constantly using those exclusive brand sites to drive traffic into stores.

The attribution of that, of course, is difficult, right? So we don't have -- it's not a ship to store order. These are people who visited the site and then hopefully come to stores. So I don't have an attribution number for the sites that I can share with you. But the sustained traffic that we see, I'm pretty darn optimistic about.

And the first part of the question again, my apologies was?

I guess, new versus returning shoppers.

Yes. We continue to see a balance between new and returning. We've quoted in the past that is roughly half and half. And as I'm looking at the number of new customers by region, it continues to be -- in some of the parts of the country, we're a little newer. For example, the Northeast, it tilts higher. In legacy markets such as California and Texas, it's a little bit lower. But there's been no real swings in new customers versus existing over the last few years since that big kind of COVID push in fiscal '22.

Our next question comes from Jon Keypour of Goldman Sachs.

So I wanted to dig into new openings. Just wondering how those have been trending versus a year or 2 ago. I think you reiterated the $3.2 million. That number has been floating around for a while. Just curious about whether or not that may get an upgrade. And then just in terms of learnings that you could apply from opening to opening and how your assortment changes maybe in how you tailor stores based on region or customer type? I just want to get a sense of productivity in those new stores and how that's advanced?

Thanks for the question, John. The $3.2 million number, we're tracking to that. It's I would say it's roughly in line with that, maybe slightly better, but not meaningfully more than $3.2 million. And so we'll continue to monitor that. And if we need to update that to a different number, we'll let you know. But they're opening really nicely across the country in different geographies. And so pleased with how those are coming along.

As far as the learnings that we've taken as we open stores in different geographies, we start with a pretty similar assortment across the country, and we will look at other stores that we believe behave similarly to the stores we're about to open up, and we'll make some tweaks around that. And then we'll monitor the new stores very closely to see what's selling, what's not selling, look at the competitive nature of the market that it's in and make tweaks to the assortment accordingly. Some of those happen before we open. Many of them happen after we open. And try to address those so that we're maximizing the traffic that we get there. And then we're also monitoring the marketing around that and looking at areas that we can improve and how we can drive more people into those stores depending on what the market -- or what the store is doing. But it really is a store-by-store analysis that we look at.

But as you walk into any of our stores across the country, you likely will not see or notice a significant difference from store to store. But our merchandising team and our stores team, they will notice the subtle differences as you move from market to market or to a store.

Okay. And then just another one on marketing. That came in a little bit lower, I think, than we might have expected. Just wondering, are you guys seeing a better ROAS? Or what exactly is driving maybe some of the pullback on the marketing spend?

It's really just timing shifts between quarters. We target a 3% marketing for the full year. We model that marketing out in advance of the quarter. And sometimes we're able to get all of that in. Sometimes things shift, sometimes there are new store openings that shift or grand openings that move around. And so it really is just timing, nothing more than that.

Our next question comes from Chris Nardone of Bank of America.

So first, how should we think about the pricing assumptions that are embedded in your guidance? Are you expecting third-party brands to take more price this summer? And are you seeing customers chase product on promotion more over the last few months relative to the trend line over the last few quarters?

Great questions. The pricing assumptions are really -- it feels like we're back to normal price increases, maybe a little bit lower on the increases than what we would historically see, but definitely lower than what we saw last summer. I think that trying to manage price increases and minimize those for the consumers is something that we and also our third-party vendors have been aware of and conscious of. And so we're seeing those be more muted this year, typically summer is when we'll see those price increases. And so that's what's happening on the pricing front.

What was the second part of the question? Sorry about that.

No worries. Just whether you're seeing a higher take rate of products that are on promotion over the last few months relative to what you've seen over the last several quarters and years?

I would say not really, not really. It's been very similar. We have markdowns as a percentage of inventory remained pretty low for us. And as we said on our last call, the promotions that we're doing for clearance items have been not as deep as what we saw maybe a year ago. And so we're not seeing a shift towards promotion.

Okay. And then just one last one. I know inventory per store was only up slightly during the quarter. But just given -- I know it's only been a month of slowdown. Just talk to us about the health of inventory on the balance sheet, particularly that women's weather boot category.

Yes. We feel great about the health of the inventory. As I just mentioned, the markdowns as a percentage of inventory are below historical standards and pretty low. We've made a conscious effort, and we've talked about just being in stock on the what we call our tried and true styles, the styles that are on replenishment that oftentimes have been in our assortment for years and making sure that we've got the product that our customers want. And our inventory being on replenishment style is -- kind of shows that it's pretty low risk. It takes us a little bit longer to sell through it. That's fine. It is still going to sell. So not something we're concerned about right now.

Our next question comes from Sam Poser of Williams Trading.

First of all, has your -- to what degree has your vendor count change? Has it come down? And is that what's helping provide the leverage on the freight costs? Like are you becoming much more important with less vendors with more tried and true items, which would make moving containers and all that stuff much more cost efficient and get you better pricing at the same time?

The vendor count is pretty similar to what we've had in the past. It's really not impacting the freight. But what is happening is we do volume discounts with some of our third-party providers we can take a full container load of product or styles from that vendor and give that discount. That's something that as we grow and scale, we're just buying more with each vendor just because of your size and the growth that we've seen. And so that helps us get more of those volume discounts, but not really anything to do with the freight per se.

And then were there any markets in the quarter that performed better than others regions of the United States? And then also, as you've opened stores, are you going -- are there new markets you've entered or are planning to enter for the balance of the year and maybe how some of the new markets such as parts of the Northeast are doing?

Yes, not -- there are always markets that perform better than others. Nothing worth calling out on this call. As far as opening into new markets, there are new markets that we're we'll be heading into over the course of the year, not something that we want to talk about on the public call for competitive purposes.

Our next question comes from Corey Tarlowe of Jefferies.

Great. I just wanted to ask a question on fashion trends, and I recognize that it's not the genesis of what your business does. But I'm curious that the categories that are exposed to certain areas of fashion, are there any specific trends worth calling out?

Well, I mean, not really. If you look at all the categories where there is some fashionable, more fashionable product, it is very much as it's always been. If I really had to get down into the details and look for something, you'll see some brands do a little more of a wider flare. So we still have bootcut jeans make up the vast majority of what we sell at Boot Barn, but you're seeing a silhouette that is not that barrel jeans I talked about on past calls or at conferences, but a little bit of a wider boot leg jeans from some of the Western retailers. But again, that's a very, very small piece of the women's denim business, which on its own is only roughly 5% of our business.

So by far and large, it's more of the same Western -- traditional Western boots, traditional boot-cut jeans selling in the performance category. There's a lot of rubber sold kind of brown women's boots that are selling. Nothing new to really call out from a fashion standpoint unless you really want to get into some newer silhouettes on the denim side that make up a very small piece of business.

Understood. And then just a follow-up on an earlier question, Jim, I believe it was about AUR versus transactions. I was wondering if you could talk about what's embedded within the guidance for this year from a ticket perspective. It does sound like the increases should not be as sizable as what we've seen in prior years. But I was wondering if you could provide more color there in terms of what you're seeing.

Yes. I think you characterized that correctly, Corey. The -- we're expecting AUR to be up 2% to 3% on the year. And we expect the transactions to be flat to up 1% on the year that kind of gets us to that 3% stores comp number at the high end of our range. and address the question earlier about the price increases this year being more tempered and more in line, if not a little bit lower than what we normally see from the third-party vendors.

Our next question comes from Jeremy Hamblin of Craig-Hallum.

This is Will on for Jeremy. So it sounds like you're still seeing a lot of new customers falling through the exclusive sites. I'm just curious if you've seen any sort of behavior differences between this new cohort of customers in your existing base?

For the exclusive brand sites, no, there's nothing particular to call out around the exclusive brand customers. Those who purchase on the sites, those are the ones, of course, we have the most information about. It varies by site. Some of those sites are more impulsive purchases that will have a lower AUR or ADT rather, depending on the site. Others will look exactly like a typical purchase on Boot Barn. So there's nuances to each of the sites. We're now running Idyllwind, Hawks, Cody James, Clio and Cheyenne. And so behavior shifts a little bit by those sites in terms of the type of purchase since we're -- it's more discovery, and we're finding those customers on places like Meta and TikTok.

And so some of those purchases are a little more impulsive as they discover the brand and learn about the brand. But nothing -- and on the TikTok side, to be fair, those do skew a little bit younger. But again, these sites do a very, very small piece of the overall business. It really is about the storytelling and the brand building and the sessions and the time that people spend on those sites learning about the brand, so they can come into a Boot Barn store. And experience what makes us great. It's the store more than anything. So our goal with all of those sites is to drive those folks into stores and for the 2% who decide to purchase on the site, we do everything in our power to get those folks into the stores as well and convert them into an omnichannel customer.

This concludes the question-and-answer session and today's conference call. This call has now concluded. Thank you for attending today's presentation. You may now disconnect.

Good day, everyone, and welcome to the Boot Barn Holdings, Inc. Fourth Quarter 2026 Earnings Conference Call. As a reminder, this call is being recorded.

Now I would like to turn the conference over to your host, Mr. Mark Dedovesh, Senior Vice President of Investor Relations and Finance. Please go ahead, sir.

Thank you. Good afternoon, everyone. Thank you for joining us today to discuss Boot Barn's Fourth Quarter and Fiscal 2026 Earnings Results.

With me on today's call are John Hazen, 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. 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 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 fourth quarter and fiscal 2026 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 John Hazen, Boot Barn's Chief Executive Officer. John?

Thank you, Mark, and good afternoon. Thank you, everyone, for joining us. On this call, I will review our fourth quarter and fiscal '26 results, provide an update on current business and discuss the progress we have made across each of our 4 strategic initiatives. Following my remarks, Jim Watkins will review our financial performance in more detail, and then we will open up the call for questions.

Looking back on my first year as CEO, I'm extremely proud of our team's accomplishments. Over the past year, the team has not only executed on our 4 strategic initiatives, but also exceeded the expectations on the 3 additional priorities I introduced: building the sourcing organization; marketing exclusive brands and stand-alone brands; and reinvigorating our work boots business. I would like to spend some time discussing each of these priorities.

First, our sourcing organization ramped up throughout fiscal '26 is now fully built out. While we expect the run rate benefits of this team to begin to be realized late in fiscal '27 and during fiscal '28, the timing of this investment proved especially advantages. As the tariff landscape evolved, the team's mitigation efforts and factory negotiations helped drive margin expansion over the past year.

Second, we refined our opening approach to better position our exclusive brands as a stand-alone brands, resulting in sales penetration growth that exceeded our initial expectations. Over the past year, as part of these efforts, we have launched 4 dedicated brand websites of Cody James, Hawx, Cheyenne and CLEO & WOLF. These sites are in addition to the legacy [indiscernible] site we have had for many years. I am very pleased with the strength of our brand storytelling and the new customer acquisition these sites have generated.

Finally, our working business exited this year with 4 consecutive quarters of accelerating comp sales growth and has maintained the momentum at the start of fiscal '27. This performance reflects the impact of several initiatives, including enhancements to our in-store merchandising, increased marketing focus on the work category and targeted investments in key third-party brands to ensure we offer the right assortment for our work customers.

Now turning to full year results. I am very pleased with our fiscal '26 results, which reflect strong performance across key metrics, broad-based strength across the business and unprecedented sales and earnings for the company. For the full year, revenue increased 18% to $2.25 billion, driven by continued momentum across the business. We opened a record 80 new store delivered same-store sales growth of 7.2%. Merchandise margin expanded by 80 basis points, contributing to a remarkable 660 basis point expansion over the past 6 years.

Earnings per diluted share grew 25% to $7.35, an increase of $1.47 compared to the prior year.

Turning to our fourth quarter results, total revenue increased 19%, driven by the opening of 25 new stores during the period and consolidated same-store sales growth of 6.1%. While we had originally estimated 15 store openings in the fourth quarter, we were able to accelerate the opening of 10 stores that had initially been scheduled to open in early fiscal '27. Earnings per diluted share in the fourth quarter increased 19% compared to the prior year period to $1.45.

I am extremely proud of the team's accomplishments over the past year, and I'm excited about the opportunities ahead as we continue to drive growth in the business.

Now turning to current business. Through the first 6 weeks of the fiscal first quarter, we have continued to see broad-based strength in same-store sales across all channels. On a consolidated basis, quarter-to-date same-store sales are up 5%, cycling high single-digit growth in the prior year period and we feel very good about the underlying momentum of the business and our start to the quarter.

I will now spend some time discussing each of our 4 strategic initiatives. Let's begin with new store growth. Our new store engine continues to deliver strong results across all regions of the country. Over the past 5 years, we have opened 267 stores, which doubled our store count at 539 locations at fiscal year-end. The 267 stores comprised half of the chain and contributed more than $750 million in incremental revenue to fiscal '26, exceeding our expectations on average for sales, earnings and payback. As a reminder, these stores on average are on track to generate approximately $3.2 million in annual sales in their first full year of operations and to pay back their initial investment in less than 2 years.

In addition to driving incremental sales and earnings, new store sales, new stores also helped drive same-store sales growth once they enter the comp base. Stores opened within the past 5 years, which as a reminder, have not yet reached sales maturity, added approximately 150 basis points to consolidated same-store sales in fiscal '26.

Looking ahead, our new store pipeline remains strong, and we believe we are well positioned to continue expanding the Boot Barn brand for years to come as we progress towards our long-term target of 1,200 stores across the United States.

Moving to our second initiative, same-store sales. Fourth quarter consolidated same-store sales increased 6.1% with brick-and-mortar same-store sales increasing 5.2%. Store comp growth was driven by a low single-digit increase in transaction count and to a lesser extent, growth in average unit retail. From a merchandising perspective, we delivered broad-based growth across most major merchandise categories. Men's Western boots increased mid-single digits and ladies Western boots increased low single digits. While men's and ladies apparel increased double digits, led by low-teens growth in denim.

Notably, the majority of our top-selling styles in the stores have been in our assortment for more than 5 years, underscoring the durability and consistency of our core offering. Our work boots business delivered mid-single-digit comp growth during the quarter, which, as I mentioned earlier, marks the fourth consecutive quarter of growth in this category.

From a marketing standpoint, the team continues to effectively balance advertising spend across channels to drive traffic to both our stores and e-commerce sites and expand overall brand awareness. In April, for the first time, Boot Barn served as the official boot retailer for Stagecoach, the world's largest country music festival. We hosted events at our local stores and onsite at Stagecoach and sponsored one of the festival's music stages. We are very pleased with this partnership and believe it will help drive incremental customer acquisition going forward.

For fiscal '26, our customer loyalty database grew 12.5% year-over-year, reaching 10.8 million total active customers. From an operations perspective, our field team continued to deliver best-in-class customer service while driving strong sales performance. This was particularly notable given the demand of this past quarter, including holiday recovery, heavy new store openings, rodeo season and our annual physical inventory.

I would like to thank our field organization and the entire Boot Barn team for their continued partnership and outstanding performance.

Moving to our third initiatives omnichannel. In the fourth quarter, e-commerce comp sales increased 14.1%, driven by double-digit growth on bootbarn.com. During the quarter, we launched dedicated websites for 2 of our women's exclusive brands: Cheyenne, our leading women's brand; and CLEO & WOLF, our country lifestyle brand. We are pleased with the early results of these new launches as well as the enhanced storytelling capabilities the platforms provide, allowing us to continue to position and market out exclusive brands as stand-alone brands.

From an AI perspective, the digital team continues to identify opportunities to increase -- to drive incremental traffic across online and in-store channels, leveraging AI to enhance the customer experience and further elevate the brand. AI is also being used to augment existing capabilities, improve efficiency and enable greater focus on higher-value work.

Now to our fourth strategic initiative, merchandise margin expansion and exclusive brands. For the full year, our merchandise margin increased by 80 basis points, significantly outperforming the expectations we originally had at the beginning of the year. Exclusive brand penetration increased 220 basis points for the full year to 40.8%, with fourth quarter penetration up 90 basis points. Over the past 6 years, exclusive brand penetration has grown by an impressive 1,900 basis points.

Looking ahead to fiscal '27, we believe we have multiple drivers of ongoing merchandise margin growth in addition to our ability to further increase exclusive brand penetration. We expect fiscal '27 exclusive brand penetration to reach 41.3%, reflecting an increase year-over-year of approximately 50 basis points as we lap strong growth from prior years and continue to drive growth in our work boots category with third-party vendors. We remain confident in our ability to expand exclusive brands towards our long-term target of 50% of total sales.

I would like to now turn the call over to Jim.

Thank you, John. I'm very proud of Boot Barn's performance in fiscal '26. As our commitment to our 4 strategic initiatives, drove sales that exceeded $2.2 billion and delivered 25% earnings per share growth of $7.35. I am confident these strategies will continue to support both near- and long-term growth.

Turning to the fourth quarter. Net sales increased 19% to $539 million. Consolidated same-store sales grew 6.1%, driven by a 5.2% increase in retail store comps and a 14.1% increase in e-commerce comps. Fourth quarter merchandise margin decreased 30 basis points, which outperformed our guidance. Merchandise margin was driven by better-than-expected product margin expansion of 40 basis point [indiscernible], offset by a 70 basis point headwind from cycling low shrink and low freight expense in the prior year period. Buying, occupancy and distribution center costs deleveraged by 50 basis points, primarily as a result of new store occupancy costs, resulting in a gross profit decline during the quarter of 80 basis points.

SG&A expenses for the quarter were $139 million or 25.7% of sales, which was a 50 basis point improvement over last year, but slightly higher than expectations. Income from operations was $57 million or 10.6% of sales and earnings per diluted share increased 19% to $1.45 compared to $1.22 in the prior year period.

Turning to the balance sheet. On a consolidated basis, inventory increased 13% year-over-year to $845 million and slightly decreased on a same-store basis. The increase in total inventory reflects the growth needed to support new stores, exclusive brands and inventory purchased at a volume discount. Overall, we feel good about the health of our inventory, and markdowns as a percentage of inventory remained below historical levels.

During the quarter, we repurchased more than 68,000 shares of our common stock for an aggregate cost of $12.5 million under our $200 million share repurchase authorization.

This brings total repurchases in fiscal '26 to $50 million for approximately 287,000 shares. We ended the quarter with $141 million in cash and 0 drawn on our $250 million revolving line of credit.

Turning to our outlook for fiscal '27. In establishing our sales guidance for fiscal '27, we utilized sales trends from February through April and applied the historical seasonality of our business to arrive at our sales forecast for the year. We also analyzed purchasing behavior across income segments and have not observed any meaningful divergence among low, middle and high-income customers at Boot Barn. Our guidance reflects the trends we have seen from our customers over the past several months and does not consider potential impacts from changes in the macroeconomic environment. Additionally, our outlook excludes the potential recovery of approximately $18 million in IEEPA tariff refund that we are actively pursuing. The supplemental financial presentation we released today outlines both the low and high end of our guidance ranges for the full year and the first quarter. In my following remarks, I will focus on the high end of those ranges. For the full year, at the high end of our guidance, we expect total sales of $2.6 billion, representing 16% growth over fiscal '26. We expect same-store sales to increase 4%, including a 3% increase in retail store comps and 13% growth in e-commerce comps.

Merchandise margin rate is expected to be approximately 51.4% of sales, reflecting a 50 basis point increase year-over-year. We expect the growth in merchandise margins to be driven by buying economies of scale, moderated promotional activity, supply chain efficiencies and an increase in exclusive brand penetration. We expect gross profit rate to deleverage by 20 basis points year-over-year to approximately 37.9% of sales. We expect to achieve 40 basis points of SG&A leverage. We also expect income from operations of $353 million for 13.5% of sales, an increase of 20 basis points over last year.

Net income is projected to be $265 million with growth in earnings per diluted share of 18% to $8.64. Capital expenditures are expected to total $130 million, and we anticipate an effective tax rate of 25.7% for the year. We plan to open 70 new stores in fiscal '27 compared to our original plan of 80 stores as we accelerated the opening of 10 stores into fiscal '26. Store growth in fiscal '26 actualized at 17%, and we anticipate 13% growth in fiscal '27, resulting in a 2-year average growth rate of 15%. From a timing perspective, in addition to the 10 stores that were accelerated into the fourth quarter, we now expect to open approximately 25 stores in the first quarter of fiscal '27 with the remaining 45 stores anticipated to open relatively evenly throughout the balance of the year.

Turning to our leverage points for fiscal '27. We expect to leverage income from operations at 3% consolidated same-store sales growth. We expect to leverage selling, general and administrative expenses at 2% same-store sales growth. As outlined in our supplemental financial presentation on Slide 9, our accelerated store growth over the past several years, combined with our planned fiscal 2027 openings continues to put pressure on occupancy costs. While new stores opened within the past 5 years are ramping as expected. The inclusion of these newer locations and our comp base has reduced the proportion of fully mature locations in our sales base and increased occupancy costs as a percentage of sales. Importantly, average occupancy cost per store has remained relatively consistent, and we expect continued maturation of newer cohorts to support same-store sales growth and margin performance over time. In fiscal '27, we plan to open 2 high-traffic, high-visibility stores that we expect will generate outsized sales volumes relative to our typical new store model. These locations also carry higher preopening costs, including noncash incremental straight-line rent expense due to earlier than average possession dates and longer build-out periods. As a result, we will incur several additional months of occupancy expense at elevated costs with one of these stores not expected to open until later in the fiscal year. Additionally, we are annualizing the investment in our sourcing organization which ramped up during fiscal 2026. As John mentioned earlier, we have already realized many benefits from this investment, including tariff mitigation and improved factory negotiations and expect to see the sales from higher-margin products begin to materialize towards the end of fiscal '27 and into fiscal '28.

Finally, we continue to invest in our distribution centers to support ongoing growth. This year, we're annualizing the extension of our legacy California distribution center lease that was executed midway through last year and are continuing to deploy capital across all 3 distribution centers to enhance capacity and efficiency. These investments support new store expansion, growth in exclusive brands and margin opportunities through volume-driven purchasing and inventory optimization. As a result of the continued addition of new stores to our sales base, and these focused investments, we anticipate a higher hurdle rate this year on buying, occupancy and distribution center costs with expected leverage at 10% same-store sales growth. While these initiatives create near-term pressure on buying occupancy and distribution center costs, we believe they will position the business to drive further sales growth and margin expansion over the years to come.

Although we anticipate ongoing pressure on occupancy rate as we invest toward our long-term target of 1,200 stores across the U.S., we expect to offset this pressure through merchandise margin expansion and SG&A leverage consistent with recent years.

Now turning to our first quarter guidance. We expect total sales at the high end of our guidance range to be $584 million and a consolidated same-store sales increase of 4%. We expect merchandise margin of approximately 51.5% of sales, representing a 60 basis point decline year-over-year, but a 120 basis point increase on a 2-year stacked basis. This guidance reflects 10 basis points of product margin growth as we lap 100 basis points of product margin expansion in the prior year period, offset by a 70 basis point increase in freight expense as we cycle low freight costs last year.

Our outlook assumes current freight rates that while higher year-over-year are consistent with the fourth quarter. We expect the year-over-year freight pressure to moderate as the year progresses and anticipate a 10 basis point decrease in freight expense for the full year. While we have seen increases in container cost and increased fuel surcharges for domestic shipments, assuming the freight rates and fuel surcharges, they are roughly in line with where they are today, we expect this pressure to be more than offset by improvements in our supply chain and logistics pricing. We expect gross profit of approximately 37.3% of sales, including 120 basis points of deleverage in buying, occupancy and distribution center costs for the first quarter.

SG&A for the first quarter is expected to be approximately 25.5% of sales, representing 40 basis points of deleverage year-over-year. This increase is largely driven by the timing of marketing expenses which are more heavily weighted towards the first quarter of this year, primarily as a result of our new Stagecoach sponsorship and related events. For the full year, marketing spend is expected to remain in line with our historical level of approximately 3% of sales. In addition, SG&A reflects incremental expenses associated with store growth, including 26 grand opening events this year in the first quarter compared to 18 last year as well as preopening store labor for 25 new stores this year versus 14 in the prior year.

We expect income from operations of $69 million or 11.9% of sales and earnings per diluted share of $1.71 compared to $1.74 last year. We expect our first quarter fiscal '27 earnings to come in below last year, primarily due to an extremely strong first quarter in the prior year that creates a difficult comparison.

Looking ahead, second quarter fiscal '27 earnings are expected to be in line with first quarter fiscal '27, resulting in strong year-over-year growth given last year's second quarter was comparatively smaller than the first quarter versus typical historical cadence. Overall, we are confident in our fiscal '27 guidance, our solid start to the first quarter and the ability of our team to execute on our financial plan.

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

Thank you, Jim. I am very pleased with our performance in fiscal '26 and the start of fiscal '27. Our team continues to execute at a high level, and I believe we are well positioned for another year of growth. I want to thank our entire team across the country with our hard work, dedication and unwavering commitment to serving our customers and building the Boot Barn brand.

I would now like to open the call for questions.

[Operator Instructions] The first question comes from Matthew Boss with JPMorgan.

Congrats on another nice quarter. So John, on first quarter to date, running 5% comps, can you elaborate on the consistency of demand that you're seeing whether it's across categories or regions despite May facing your toughest compare of the quarter and the first quarter facing your toughest compare of the year.

Yes, absolutely. Looking at the first 6 weeks of Q1, we're very happy with how broad-based the comps and the growth has been. We're seeing across most major merchandise categories, notably work boots are trending up in the high single digits. We're seeing nice performance in denim, men's Western boots as well and women's apparel.

The one -- to your point, the one soft spot is women's boots is a little softer going up against such strong comps in Q1 of last year in the mid-teens. But other than that, if we look at it by geography and all other major merchandising categories, it is broad-based.

And then just a follow-up. So John, as we think about 7.2% comps this year, I mean, that's actually consistent with 7%-plus pre-pandemic performance. Could you speak to the durability of the top line drivers that you think you have remaining and the outperformance relative to the 2% to 4% historical target. If you could just walk through maybe the structural expansion of the total addressable market that you've seen?

Yes, absolutely. We've proven over and over again, of course, that we can comp the comp, and we have exceeded that, to your point, I think there's a couple of things going on. One is the resiliency of our customers and the product that they're buying that they need to buy each and every quarter. And we continue to be a need-based business. And as we said in the prepared remarks, which is kind of new news is the majority of what we sell of our top sellers are products that have been in the line and in the stores for more than 5 years.

Beyond that, we've become more of a denim destination as we've said in the past. I think if you walk into a Boot Barn for the first time, and I hear this on a regular basis when I'm in the stores and doing store visits across the country, people say, "Hey, I've only just recently discovered Boot Barn. I can shop here on a regular basis. It's not only for that need base customer," and I think we're taking denim market share from some of the mainstream players who have struggled over the years, and we can service those customers who perhaps aren't part of that need-based segment, but instead have found us and realize we can be more of a lifestyle or general retailer to them.

The next question comes from Max Rakhlenko from TD Cowen.

Great. So just first question is, can you elaborate a little bit further on how we should think about the freight headwind throughout the year? You gave us the 1Q some of the guidance. But just the rest of the quarters, what's a good way to think about it, especially if any of the costs were to increase from here? And then just remind us how you capitalize some of the freight expenses.

Sure. so while we're not going to provide the freight numbers as we get throughout the year, the freight in the first quarter -- if you go back to last year, we had really nice freight benefit in the first quarter, and then we had a freight headwind in the second quarter. As we lap that, we would expect to see in the second quarter a freight tailwind, assuming all things being normal in this freight environment. And so -- and then as we get into the back half of the year, that should be flattish to get us to a 10 basis point improvement on freight year-over-year. As you think about how we capitalize freight, we turn our inventory roughly twice a year. And so as we incur freight expenses, we capitalize those and extend some over a 6-month period. And so if there were to be elevated freight costs that were to come in over the next 6 months, we would see those go through our P&L in the back half of the year. And so that's roughly how we manage it now.

Got it. That's helpful. And then I think one of the lessons that we learned last year is that maybe your customer shows less elasticity to you guys taking price. So does that give you more optionality this year as you look to potentially offset some of the transportation or other price increases that we're seeing? And then within that, you did take less price on EBs than national brands. So just curious if there's an opportunity this year to catch up on that?

I think let me just keep on the freight for just a quick second, and John can jump in on talking about our pricing strategy for the year. But the -- some of the things that are allowing us to offset some of the increases that we've seen already are the negotiations that we've taken with some of our logistics partners, and that's really allowing us already to offset some of the surcharges that we're seeing as we get better discounts with our providers, even as the the core or the gross cost goes up, we're able to offset that. And so that's been a nice benefit to us right now. If you look at container costs, well, they've been elevated over the last couple of months, they're still relatively low compared to what some of the spikes we've seen over the last 3 or 4 years. And so it would have to get pretty outsized on the container cost for us to feel that in the material way this fiscal year. I don't want to forecast what's going to happen with freight and fuel costs, but we did want to convey that we've got kind of the current run rate model then for the balance of the year? And anything that kind of accelerates from here or elevated from here is not contemplated in the back half of the year.

Thanks, Jim. And then if we look at our pricing strategy on third party as well as exclusive brands, the best way to put it is we're back to kind of normal business and normal cadence of business and price increases. We got through the holiday season. We completed our price increases on our exclusive brands. We continue to see nice performance with exclusive brands. And every summer, we see some price increases from some of our third-party vendors. And it's really business as usual at this point. i.e., to tariffs struck down to 10%, deemed unlawful but still in place. We're kind of running business right now business as usual from a pricing standpoint.

The next question comes from Steven Zaccone with Citi.

Great. Congrats on a nice quarter and nice year. I wanted to follow up there, just thinking about same-store sales. Could you help us just understand in the quarter-to-date performance, what is the transaction versus ticket?

And then to follow up on the earlier question, how do you think about the outlook for transaction versus ticket this year? Obviously, your transaction compares are tougher in the first half. So how do we think about that over the of cadence of the year?

Sure. As we look at it for the first weeks of the fiscal year, it really is how we believe it's going to play out for the remainder of the year. We're up roughly 3% in AUR for the first 6 weeks. And from an ADC standpoint, we're up roughly -- or transactions rather, excuse me, were up roughly 1%. And so we think we'll be 0% to 1% on the transaction side and 2% to 3% on the AUR side.

Okay. And then you mentioned opening 2 stores that are high visibility, high traffic kind of curious where they're going to be. And then in terms of the 70 store openings this year, can you just help us understand, how you think about new markets versus existing markets in that store opening plan?

Absolutely. So one of the stores, the bigger or more expensive one is in on the strip in Las Vegas. And the second one is in the market in Southern California. As far as the 70 stores that we're planning opening this year, we often struggle as we think about a new market versus an existing market and number of stores that are going to be 40 miles plus away from an existing store is the majority of the 70. There are some that will open that are in closer proximity, particularly in bigger metropolitan markets that can be 10 miles apart or even closer, there are -- yes, several of those that we'll plan on opening this year.

The next question comes from Peter Keith with Piper Sandler.

Congrats on the continued momentum here. With the subject of gas prices, there was a time years ago where Boot Barn actually might do better in a period of higher oil prices. I was wondering kind of where you stand today and how you think about the impact of higher oil prices, higher gas prices if these stay sustained. And specifically, anything you're seeing in Texas as maybe one market that's potentially seeing a lift?

Sure. I think generally speaking, if you're thinking about this from the input cost of things, clearly higher freight or higher fuel prices lead to higher freight costs, and that's something that puts some pressure on the model and often requires increases in pricing. If you're asking the question around our consumer, which I think those were the discussions we had -- we've had with Peter over the last 10-plus years, our business is more diversified than it used to be out of the oil and gas market. There is a thought that there is a -- as we drill more in the U.S. or we do more fracking in the U.S. and we bring more of that oil production and refinery here into the U.S. that there could be a benefit our core customer and some of the markets that -- while we're less penetrated than we used to be, we overpenetrate compared to many other retailers. And so there is the potential that, that could be a benefit to certain folks. As far as what we're seeing right now, there's not anything that we're seeing in our business by geography that would lead us to believe that there's an impact that's helping us right now in those markets.

Okay. Helpful. And then maybe for John, so congrats on the Stagecoach presence. I know some of the online feedback was that you guys were one of the stronger brands at that festival. Should we about that as a Q1 impact to sales? Or do you think that branding was positioned that there is more of a sustained benefit over time?

Thanks, Peter. Yes, that was a nice review of the brand that kind of own Stagecoach. That was really nice to see. We -- I was at Stagecoach. I spent 2 days, 1 day at our stores at stores, 1 day at the event, and 1 day watching the streaming side of it, which I -- was the part that I was most excited about. I thought we did an incredible job in Southern California and for the folks who come in from Arizona and Nevada to come to Stagecoach. Our store event was great. Our on-site event at Stagecoach had lineups every single day. It looked amazing. But the best part was the Mustang stage presented by Boot Barn. It was a new stage for Stagecoach, had bands -- some kind of retro bands on their Diplo, Counting Crows, Bush, Third Eye Blind. And it was streamed by Amazon. And so it was that amplification that we saw in the number of folks watching the Stagecoach festival far beyond Southern California, turning it into a national or even argue a global event that most excited me. So I think this is going to be over the long term, more and more folks across the country and the world, recognizing the brand name. And we're already working on how we're going to be louder on that Mustang next year in partnership with the [ ABG ].

The next question comes from Janine Stichter with Jefferies.

It's Janine Stichter with BTIG, and I was hoping you could talk a little bit about the exclusive brand strategy over 40%. How you see that evolving? It definitely seems like you've made some big investments behind the private brands, but at the same time, often seen you add some new third-party brands. So if you could just weigh in there on how you're thinking about that.

And then just on the guidance, I wanted to clarify, typically, I think you take the prior 6 to 8 weeks or so of volume and then kind of run rate that through the year, macro you've...

Yes. I'll take the first part, Janine, and then I'll pass it to Jim to talk to kind of how we came up with sales.

On the exclusive brand side, it has always been a little lumpy. Again, we had guided 100 basis points last fiscal year, penetration going from 38.6% to 39.6%, and we nicely exceeded that by 120 basis points. We are marketing those exclusive brand sites and seeing some nice business come through those sites. So I'm still very optimistic about the growth and our march forward 50% exclusive brand penetration over the next several years. That being said, we are having some success with some third-party brands, especially in the workspace that is putting some pressure on the overall expensive brand rate. So that's why it's a little lower this year than we have seen, but we are fully confident that we will get to 50% exclusive brand growth over the next several years.

And Janine, on your guidance question, you got cut off or something happened. Do you mind repeating that, please?

Sure. I was just asking about -- typically, you have the formula where you take the last, however, many 6 to 8 weeks of store volumes and run rate it through annually. And I think last year, you gave a bit of a haircut due to macro? How are you thinking about the macro embedded in that, the formula this year?

Yes. So we did take a similar approach. We took February, March and April and extrapolated that over the balance of the year. What we did different when compared to last year is we did not take a haircut from that guidance. And so the guidance that is laid out there is the guidance as the math works out in that extrapolation.

The next question comes from Jonathan Komp with Baird.

This is Alex Conway on for Jon. I just wanted to ask, when you -- I know you mentioned not having seen really consumers across any income cohort pullback. When you kind of look at March and April, the comps, especially for the in-store just pulling back a little bit from February and January and starting to see that come back here in May. Anything stand out that is necessarily driving that change?

No. When we look at the comps in store, we look at it by cohort, we're not seeing anything in one income bracket and one geography and one occupation that stands out. There's no kind of "K-shaped economy impact" happening to our business. But we are up against some strong comps from last year. And so we're quite happy with the comps we're seeing in store and online, and we're sitting at a plus 5% right now. We've guided the year at a plus 4%. So we feel good where the business is. We just know we're up against some of the toughest comps of last year.

Great. That's super helpful. And then just one more kind of on the sourcing side? I know you mentioned you should start to see some benefits in the second half of this year. Just beyond just the tariff offsets, what are you really kind of sharpening there to get those benefits? And then is there any potential of product cost increases given the current oil environment?

We've asked that question of the sourcing team very recently and nothing dramatic happening on the raw material side right now. That's worth calling out. When we look at how we're going to attack sourcing and our mix across the globe as we enter the next phase of tariffs, we are trying to leverage USMCA. So we've started to move certain products, more products to Mexico, we're essentially duty free. We're also looking at other duty-fee countries that are part of other agreements, such as AGOA in the Africa region and multi-sourcing products that we may have always had in a particular Asian country and then sourcing it in alternative countries. So it's always a very fluid situation, but we -- and I meet with the sourcing team once a week, we feel great about how they are bobbing and weaving, so to speak through the tariff environment. Jonathan, does that answer your question?

The next question comes from Jay Sole with UBS.

John, I want to follow up, if possible, on the exclusive brands. You talked about 50% penetration, but I'm interested in sort of the stand-alone opportunity given that the stores and the websites that you have and what you've learned over the last 90 days, that might inform your vision for the stand-alone side of what the exclusive brands could be and where you might take those going forward?

Yes. There's nothing planned for this fiscal year is going to be kind of business as usual outside of these sites. I think these exclusive brand sites will grow some nice business, and we'll continue to market them both in traditional digital methods such as Google PPC as well as Tiktok, and we are seeding influencers with thousands SKUs from our exclusive brands. So we're going to continue to push exclusive brand marketing as you would at any other stand-alone brand throughout the year. So that has a lot of momentum and energy behind it. Well, we're not planning for this year, but I think about, and I've said this before often is, at some point, distributors internationally and whether it be in Canada or Australia or something I would consider. Would we ever take a particular category and wholesale it to a particular retailer? Possibly. So I do think there are other growth drivers. Our commercial accounts business would be another place where we could skew towards exclusive brand. So I think there are other growth levers beyond the marketing, the exclusive brand sites, making the brands more recognizable, more coveted. We're doing all those things this year. As I look forward to the next couple of fiscal years, I think some of those other growth levers will start to come into play, but they're not in fiscal '27.

Got it. If I can just follow up on one. Do you need to add extra infrastructure in terms of supply chain capabilities or IT capabilities to be able to maybe do some of those things, not this year, but next year, whether it's distributors or international or some of the other ways that maybe you could drive the exclusive brands?

Yes. I've had experience architecting these deals in a past life. And the way we've always done it and we will do it here is you'd have 1 customer in each country, the distributor and the orders would peel off at the source. And so we won't store it here, we won't ship it from here, and it would go directly to that distributor. So it is very, very light in the way I've done in the past life from a footprint and resource standpoint.

The next question comes from Chris Nardone with Bank of America.

We just have a few margin follow-up questions. First, on gross margin. Can you just elaborate on the sustainability of this 10% buying occupancy leverage point beyond this year as you hold this level of unit growth?

And then on SG&A, it looks like you're getting about 20 basis points of leverage for each point of comp. If you continue to flow through better comps than what you're initially expecting, is there a good rule of thumb on how we can think about the incremental SG&A leverage as we also try to think about incentive comp potentially moving around?

Yes. No problem. On the second question on just the flow-through of a beat to our guidance, we typically model in a 35% flow through to income from operations or EBIT on the beat. I think your math on the SG&A leverage also gets you probably to a pretty similar spot as you model that forward. As to the 10% same-store sales required to leverage buying occupancy and distribution center costs. As we get into next year, I would expect that to go down because I'm not anticipating having some of these other one-time or special investments that we talked through, particularly those 2 stores and the cycling of the lease amendment in our Southern California distribution center. And so I would expect that to go back down a couple of points.

Okay. Got it. And then just a quick follow-up on the digital comps. Can you just remind us how much these new exclusive brand websites you've launched over the last several months have contributed to that digital comp and just remind us of the cadence of how we should think about lapping each launch throughout the fiscal year?

Yes. We had mentioned on one of the last calls that -- and we had 2 sites at that point that they were contributing 1/3 of the e-commerce growth. It's a little cloudier right now. We are testing several different initiatives around the different sites. Some of them are much bigger. Cody is much, much bigger than CLEO & WOLF as an example. So it's still undetermined how much of it will be part of the growth for e-commerce.

The next question comes from Corey Tarlowe with Jefferies.

Yes. John, you made a comment about work boots and third parties? Or I guess could you just clarify what it is that you meant around kind of that comment or that dynamic? Just curious there.

Yes. We have seen some great sell-through from some of our 30 brands that we have bought. We're retailers. So we're going to provide what a customer wants to buy and sell them what they want from a product standpoint. And we have seen some nice sell-through from several. This isn't one brand, several work boot brands on the Lace-Up side as well as on the Pull-On side. And so there's a little bit of rebalancing as part of this work reinvigoration that's happening as we bring in some of these fast selling third-party brands. And of course, when we do that, we're going to take a little bit of a hit on our exclusive brands on the work boot side. So that work boot brand EB penetration or exclusive brand penetration will be a bit of a drag on the overall exclusive brand penetration this year.

Okay. Got it. And then is there any way to kind of size up how that plays into the expectation for this year where you guided, the exclusive brand penetration?

And then just to clarify, Jim, I think you made a comment as well, basically, it sounds like freight actually is getting to the full year, it's like a 10 basis point improvement, but one would think that in an environment where freight costs are more elevated, but there would be, I guess, an incremental negative. And I recognize that you're lapping higher cost. Is that simply all that is? I'm just curious how that is working out in the math.

Yes. On the free and it's really a function of some of the negotiations with our logistics partners that we've been able to work out and getting our rates down, higher discount, maybe a better way to explain a higher rebates, better rate as we have increased in volume with those suppliers. And so the improvements that we've seen in negotiations are helping to offset or even more than offset some of the rising costs that we're seeing. And again, to be very clear, we're not assuming rates to exceed what we're seeing today, which they are elevated from what we had a year ago, but in an environment when those continue to rise and get significant or they don't go back down, they're prolonged at this point. The 10 basis points could be something less than 10.

And then back to your first question on work boots and the impact of those third-party brands and a growth of 50 basis points. We're comfortable with the growth of 50 basis points of EB penetration for this fiscal year, it contemplates the rebalancing of the work boots. As a reminder, work boots make up roughly 15% of our sales. And so that implies that there's going to be a decrease by 200 to 300 basis points of EB penetration on the work boot side. But the rest of the business, we're very pleased with how exclusive brands are progressing.

And this isn't something that's new to this year, Corey. Every year, we'll have some fluctuations in different categories on exclusive brand penetration. So usually, they're going up. Sometimes they're going down, they're rebalancing as we cater to what the customer wants. And so not something that we're concerned about. But as we look at the long-term growth of the exclusive brands, it's something that we've seen in the past as well.

The next question comes from Sam Poser with Williams Trading.

I got 3. They're pretty simple. One, can you just give us the breakdown of the store the store and the e-com year-to-date comps, just the 2.

Number two, is -- what regions -- somebody asked earlier about new markets. But could you talk about regions that you're focusing on with the new store openings?

And then lastly, what I view as the most important question. You've done a great job of narrowing your assortment in apparel. I'm hearing from -- talk to some of your vendors that you're working on the same thing in footwear, getting more focused on key items. Where are you on that journey? How is it helping? How long will it take to get where you're going?

Sure. So in the release, Sam, we've got the e-comm and the retail store comps broken out by months. So in April, retail comps were up 3.8%. E-commerce was up 18.3%. And in the most recent 2-week period, they're both up about 5%. And as far as the regions, I'd love to give you the road map, Sam. But unfortunately, on this public call, particularly, it's a little hard for competitive reasons for us to lay out where we're planning on going with the stores. And so we'll have to refrain from sharing that right now.

And then Sam, on the third question, you're correct. We had really last holiday season kind of leaned into that depth in denim and apparel. If I think about where we are on boots, we're having -- I've got some great examples of where that has also occurred on some very, very popular boot styles in everything from work boots to women's to men's Western. If I had to put it in an inning, we're probably in the fifth or sixth inning of that focus in boots. It takes a little longer for the vendors or our own factories to be fair to go as deep as we are able to do in denim for example, overseas. So I think there's still opportunity on the boot side. But I think what we did with the merchandising teams in denim over the last 12 months kind of open our eyes to those opportunities in boots as well, and I hear them talk about it weekly in our merchandising meetings how they're doubling down and having more than one size run of a particular style. And we know, this was going to work, let's have 2 or 3 size run in a particular store. So that philosophy has trickled through into the boot world from what we started on the soft goods with the denim.

And is that helping your conversion rates as you can see it, do you think? Or I mean -- and if you do that better, that should theoretically improve your conversion rates and increase your inventory churn as the old stuff goes away. Is that fair?

That's absolutely fair. We're still -- the conversion, we still have stores that are not comp from a conversion standpoint. So it's a little muddy. And when you look at conversion for one particular category, albeit a big one with boots, here the denominator, of course, is all the traffic. But yes, you're absolutely right.

The next question comes from John Keypour with Goldman Sachs.

I have a couple of questions. The first is just, the cadence of the comp through the year. Just looking at 2-year stacks on a monthly basis, it seems like there's been acceleration in April and May, at least and a little bit before that, too. So I'm just wondering where the conservatism for the 2% to 4% in the quarter and the 2% to 4% in the year. I understand like July obviously is going to be a pretty meaty comp, but May was almost in line with July, and it still did a 5%. So I'm just wondering why the temperance on the 4 at the high end. And I've got some follow-ups.

Yes. The cadence throughout the year, the way we planned it is pretty consistent quarter-to-quarter. And you're right, we've got a plus 5% that we're sitting on here for the first 6 weeks, and we're guiding at the high end of the range for the first quarter at 4%. What would -- I'll share with you that the second half of May, so the second 2 weeks of May last year, we're at plus 14%. And so we have a tougher part of the comps ahead of us as we look through these next 2 weeks. And as you can see, as you pointed out, pretty strong comps as we get to the year. So we're not afraid to comp the comp. We've done this in the past. I think it will be a pretty even comp. At least that's how we're modeling it for the year.

Got it. And then presumably, the 2 high-traffic stores you mentioned opening this year, right? There's going to be some elevated costs around that. Just wondering how we can think about the cadence of those costs layering in? It seems like 1Q is going to bear some of that brunt, but I'm not sure exactly. So any clarity there?

Yes. Both of those stores are taking more of that expense in this first quarter. One of those stores will open within the quarter and the bigger of those will open later this year. And so I think it's relevant to call out on the full year that it put some pressure on it. I think for modeling the buying and occupancy throughout the year, there are a lot of other things that weigh into the deleverage in each of those quarters more than those 2 stores.

Okay. And then -- all right, that makes sense. The last one is just on tariffs. I'm not sure if you guys were explicit. I assume that at the moment, you guys -- the guidance is factoring in 10%, just not sure in the back half of the year, are you expecting that through whatever mechanism it jumps back up to the pre-SCOTUS ruling tariffs?

It's really a plan of the 10% that's in there for right now. And then we will adapt to whatever tariff environment comes at us similar to what we did last year, if we need to raise prices because we're seeing price increases, and that's something we'll do. My expectation is that barring some significant changes in the tariff environment that the pricing will stay pretty well in check for this year, at least those are the early reads we're getting from our vendors.

The next question comes from Jeff Lick from Stephens.

John, on the last call, you talked about how sales like Cody James and hawx.com, the third-party environment or the direct environments, you were seeing customers that you had never seen before. And I was just curious if you could give an update if that's still happening? And then have you had any success converting them into regular Boot Barn store customers?

Yes. Yes and yes, we are still seeing many of -- the majority of customers. Roughly 70% of them are customers who have never shopped with us in-store, on bootbarn.com or any of our other channels. So they are net new customers to the brand, and we're seeing many of those then shop at Boot Barn. When you order product from us, we don't hide the fact that the packaging says Boot Barn, Sheplers, Country Outfitters. We let people know that this is coming from Boot Barn. We don't try and shield that and create unique packaging for each of the sites. And so I think the awareness to Boot Barn is coming to those customers and how they're getting their packages delivered to them. I don't have the number right in front of me of how many of them convert to Boot Barn our customers, but we are absolutely seeing it happen.

And then just from a digital perspective, what's kind of been the preferred or the most effective mechanisms you've been using to drive that kind of methodical marketing?

For the exclusive brands, it has been social. It's been Meta and Tiktok and it is their -- it's the algorithm, right? They have an uncanny ability to target folks and find new customers for you. That's why we kind of plow those marketing dollars into those companies. And the other piece of it, if you think about Meta and TikTok is the one place where a customer doesn't mind being interrupted by product discovery or an ad for a new product. We're even on YouTube, you could argue that it is disruptive to the experience they're having and that really isn't true when you're on TikTok or Instagram. And so the combination of the medium and how people use it, and how good the algorithm is at helping find new customers for us. That's where we're putting a large chunk of the marketing dollars for exclusive brands.

The next question comes from Jeremy Hamblin with Craig-Hallum.

This is Will on for Jeremy. Just wondering if you're able to quantify the total weather impact you saw in Q4 inclusive of the February storms. And then if there's anything to note on the Easter shift, if that was a benefit at all to Q4?

We did not quantify the total weather impact on Q4. We had some discussion on our last call, just early reads, but not something that we reported on for the full quarter.

And on the Easter impact, there was no real shift that we could see -- I'd say, shift we can see. We we see the Easter shift and what happens around that, but that was all contained within the quarter. But the thing that often gets a little hard to read through different spring breaks across the country as people are off for different times depending on where that falls in the year, Easter or around the Easter or not. But nothing we're calling out.

This concludes our question-and-answer session and the Boot Barn Holdings Inc. Fourth Quarter 2026 Earnings Call. Thank you for attending today's presentation. You may now disconnect. Thank you.

Good day, everyone, and welcome to the Boot Barn Holdings, Inc. Third Quarter Fiscal 2026 Earnings Conference Call. As a reminder, this call is being recorded.

Now I'd like to turn the conference over to your host, Mr. Mark Dedovesh, Senior Vice President of Investor Relations and Finance. Please go ahead, sir.

Thank you. Good afternoon, everyone. Thank you for joining us today to discuss Boot Barn's Third Quarter Fiscal 2026 Earnings Results. With me on today's call are John Hazen, 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. 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 third quarter fiscal 2026 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 John Hazen, Boot Barn's Chief Executive Officer. John?

Thank you, Mark, and good afternoon. Thank you, everyone, for joining us. On this call, I will review our third quarter fiscal '26 results, provide an update on current business and discuss the progress we have made across each of our 4 strategic initiatives. Following my remarks, Jim Watkins will review our financial performance in more detail, and then we will open the call for questions.

We are very pleased with our third quarter results, which reflect broad-based strength across all major merchandise categories in stores and online and across all geographies. During the quarter, revenue increased 16% compared to the prior year to $706 million, including consolidated same-store sales growth of 5.7%. In addition to strong sales growth, merchandise margin rate increased 110 basis points compared to the prior year period. The strength in sales and margin, combined with solid expense control, resulted in earnings per diluted share of $2.79 during the quarter. I'm very proud of the entire team's ability to execute on our 4 strategic initiatives, which drove very strong results.

Now turning to current business. Through the first 5 weeks of our fiscal fourth quarter, we have continued to see broad-based strength in same-store sales despite the negative impact of recent winter storms. On a consolidated basis, quarter-to-date same-store sales increased 5.7%, which we estimate was negatively impacted by approximately $5 million of reduced revenue due to the storm closures resulting from the recent winter storms. Prior to the winter storms, for the first 26 days of the fiscal quarter, consolidated quarter-to-date comps increased approximately 9.1%, driven by growth in transactions. We feel very good about the underlying tone of the business and the start to our fourth quarter.

I will now spend some time discussing each of our 4 strategic initiatives. Let's begin with new store growth. We opened a record 25 stores in the third quarter, ending the period with 514 stores. I am very pleased that our new store engine over the past several years has consistently exceeded our sales, earnings and payback expectations throughout all regions of the country and these strong results have continued with the stores opened during the past 12 months.

As a reminder, new stores on average are on pace to generate approximately $3.2 million in annual sales in their first full year of operation and pay back their initial investment in less than 2 years. Looking forward, we have planned 15 store openings in the fourth quarter, which would bring the fiscal year total to 70 new stores. As we look towards fiscal '27, the pipeline remains very strong, and we estimate 20 projected openings in the first quarter, which will begin in April. Given the consistent strength of our new store openings, we believe that we are well positioned to continue expanding the Boot Barn brand for years to come as we head towards our target of 1,200 stores in the United States.

Moving to our second initiative, same-store sales. Third quarter consolidated same-store sales grew 5.7% with brick-and-mortar same-store sales increasing 3.7%. Store comp growth was driven by low single-digit increases in both basket and transactions. From a merchandising perspective, we saw broad-based growth across all major merchandise categories. Our men's and ladies Western boots businesses comped positive high single digits, and our men's and ladies apparel businesses slightly outperformed the chain average, led by mid-teens same-store sales growth in denim. Our work boots business also comped positive mid-single digits during the quarter.

From an operations perspective, I'm very proud of the field team's dedication and hard work, which resulted in another strong holiday season. The field team continues to provide best-in-class customer service and drive record sales volume, while hiring and training seasonal staff, managing inventory flow and opening new stores. I would like to thank the field and the entire Boot Barn team for their partnership and execution.

Moving to our third initiative, omnichannel. In the third quarter, online comp sales grew 19.6%. We are very pleased with the growth in our online channel, particularly the positive results from our new initiative to develop exclusive brand sites. As a reminder, one of our goals beginning this year was to market exclusive brands separately from the Boot Barn brand. Earlier this year, we launched websites for Cody James and Hawx and are very pleased with the initial results on both rollouts, which have primarily attracted new customers. Looking forward, we are planning to launch stand-alone websites for more of our brands, including Shyanne, our leading ladies brand; and CLEO & WOLF, our ladies Country lifestyle brand.

Now to our fourth strategic initiative, merchandise margin expansion and exclusive brands. During the third quarter, merchandise margin increased by 110 basis points compared to the prior year period, driven by buying economies of scale, supply chain efficiencies and 240 basis points of growth in exclusive brands. I am proud of the team's ability to grow merchandise margin and exclusive brand penetration while staying committed to full price selling model, particularly during the holiday season.

I would now like to provide an update on our pricing strategy related to exclusive brand products. We will be increasing exclusive brand ticket prices on some products during the fourth quarter. We are pricing our goods in a manner that will allow us to continue to drive growth in merchandise margin rate. Our team has continued to diligently work with our factory partners to mitigate the impact of tariffs through cost concessions, which have allowed us to maintain pricing on some goods. New exclusive brand product that we have added to the assortment has already been priced accordingly at the factory level given the fluid environment we are operating in. The team continues to be flexible and look for ways to drive growth in merchandise margin.

I would like to now turn the call over to Jim.

Thank you, John. In the third quarter, net sales increased 16% to $706 million. The increase in net sales was the result of the incremental sales from new stores and the increase in consolidated same-store sales. The 5.7% increase in same-store sales is comprised of a 3.7% increase in retail store same-store sales and a 19.6% increase in e-commerce same-store sales.

Gross profit increased 18% to $281 million compared to gross profit of $239 million in the prior year period. Gross profit rate increased 60 basis points to 39.9% when compared to the prior year period as a result of a 110 basis point increase in merchandise margin rate, partially offset by 50 basis points of deleverage in buying, occupancy and distribution center costs. The increase in merchandise margin rate was primarily the result of buying economies of scale, supply chain efficiencies and growth in exclusive brand penetration. The deleverage in buying occupancy and distribution center costs was driven by the occupancy costs of new stores.

SG&A expenses for the quarter were $166 million or 23.6% of sales compared to $139 million or 22.9% of sales in the prior year period. Income from operations was $115 million or 16.3% of sales in the quarter compared to $99 million or 16.4% of sales in the prior year period. Included in SG&A and income from operations in the prior year period was a net benefit of $6.7 million related to the company's former CEO's resignation. Excluding this benefit in the prior year period, this year's SG&A expense as a percentage of net sales leveraged 40 basis points and income from operations as a percentage of net sales leveraged by 100 basis points.

Net income per diluted share in the third quarter increased to $2.79 compared to $2.43 per diluted share in the prior year period. Included in net income per diluted share in the prior year period was an estimated $0.22 benefit related to the former CEO's resignation. Excluding this benefit in the prior year period, EPS increased by 26%.

Turning to the balance sheet. On a consolidated basis, inventory increased 17% over the prior year period to $805 million and increased approximately 4% on a same-store basis. Total inventory increased as a result of adding 15% new stores, growth in comp store inventory and growth in exclusive brands. We feel good about the health of our inventory and our markdowns as a percentage of inventory are below historical levels.

During the quarter, we purchased approximately 67,000 shares of our common stock for an aggregate purchase price of $12.5 million as part of our authorized $200 million share repurchase program. We finished the quarter with $200 million in cash and 0 drawn on our $250 million revolving line of credit.

I would now like to provide an update on our fourth quarter guidance, which is outlined in our supplemental financial presentation. As the presentation lays out the low and high end of our guidance range, I will only speak to the high end of the range in my following remarks.

For the fourth quarter, we expect total sales at the high end of our guidance range to be $535 million and a consolidated same-store sales increase of 5%. We expect merchandise margin to be approximately 50.5% of sales, a 60 basis point decrease from the prior year period.

Included in our fourth quarter guidance is 20 basis points of expected growth in product margin, offset by a combined 80 basis point increase in shrink and freight expense compared to the prior year period. As a reminder, we are up against extremely strong merchandise margin expansion last year of 210 basis points, which was helped by very favorable shrink and freight. Our guidance for the fourth quarter of this year contemplates more normalized shrink levels and embeds the current run rate for freight expense, which while higher than the prior year period is lower than historical levels and in line with the third quarter.

We expect gross profit to be approximately 36.1% of sales, which includes 50 basis points of deleverage in buying, occupancy and distribution center costs. Our income from operations is expected to be $59 million or 11.1% of sales. We expect earnings per diluted share to be $1.45.

Based on our year-to-date performance and fourth quarter outlook, we are raising our full year guidance. For the full fiscal year, we now expect total sales to be $2.25 billion, representing growth of 18% over fiscal '25. We expect same-store sales to increase 7% with a retail store same-store sales increase of 6% and e-commerce same-store sales growth of 15%. We expect merchandise margin to be approximately 50.8% of sales, a 70 basis point increase over the prior year period.

This margin increase includes exclusive brand penetration growth of 240 basis points. We expect gross profit to be approximately 38% of sales. Our income from operations is expected to be $301 million or 13.4% of sales. We expect net income for fiscal '26 to be $226 million and earnings per diluted share to be $7.35.

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

Thank you, Jim. I'm very pleased with our third quarter and year-to-date results, and I 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 Instructions] The first question comes from Matthew Boss with JPMorgan. Congrats on another nice quarter.

Congrats on another nice quarter. So John, on the 9% comp for the first 26 days of January before the storms, could you elaborate on the drivers of acceleration that you had seen relative to the third quarter? Was the sequential improvement broad-based or any specific category callouts? And what did you embed for the remainder of the quarter to get to the 3% to 5% guide?

Yes. Thanks, Matt. Great question. When we look at those first weeks of January and the 9.1% comp, it was broad-based across most major merchandise categories. The one category worth calling out was the work business, the work apparel business was a little softer given some of the warmer weather we saw in January. And as we came into the winter storms or winter storm furn, we saw the needs-based business, both on the work boot and the work apparel side pick up from their incoming trend as we had the first 5 weeks of business that got us to that 5.7% despite the closures on the Saturday and Sunday, the end of fiscal January and beginning of fiscal February.

But outside of the work business, which is driven by outerwear and some warm weather, it was broad-based acceleration across all major merchandise categories. When we look at the remaining of the quarter and getting to that 3% to 5% guide, we looked at the March business, as a reminder, is close to half the quarter's business, a 5-week month combined with Houston Rodeo. And the comps get a little bit tougher in that March time frame. And we use that along with our typical forecasting to get to that 3% to 5% comp despite starting with a nice January up 9.1%.

And that implies, Matt, the February and March combined comp is 4.5% consolidated, so 3.6% in stores and 13% e-com.

Great. And then maybe a follow-up, John. Just take a step back, FY '26, now the second consecutive year of mid- to high single-digit comps. Could you speak to your level of overall visibility today as you plan the business? Are there any structural constraints that you see to sustaining this kind of momentum? Anything changing from a productivity perspective as you look at the box by category? Just kind of thinking ahead relative to the last 2 years that we've seen.

Yes. No, Matt, if we look back historically, we can comp in that low to mid-single-digit range, and we have done it many of the last 10 years. And we feel great about the new store productivity. We feel great about the new store pipeline, the broadness of the performance across all major merchandise categories. So structurally, there's nothing that gives us concern in comping the comp.

The next question comes from Steven Zaccone with Citi.

I wanted to ask on the merchandise margin outlook for the fourth quarter. Could you just elaborate on it a little bit more detail because it sounded like supply chain came in better than expected in the third quarter. So is this outlook for 4Q, the freight impact kind of unchanged versus how you're speaking to it previously? And then on the product margin being up 20 bps ex freight and shrink, how much of that is exclusive brand penetration and you just like talk through buying economies of scale?

No problem, Steve. As a reminder, we're -- for the fourth quarter, merchandise margin, we were up against 210 basis points of expansion last year. So tougher comps are part of that. Your first part of your question was on the shrink and the freight, I guess, more specifically, we're expecting 40 basis points of a headwind on the shrink side of things. It was abnormally low last year versus what we were accruing for. This year, we're expecting that to be more in line with what we've got accrued when we do our full physical inventory counts here over the next couple of months.

As far as the freight goes, yes, we have had -- overall, this year, we're expecting the freight expense to be better than it was last year as a rate. As we talked about, I think it was on the last call, it's a little bit lumpy throughout the year where we've seen -- I think it was the first quarter was really good freight. The second quarter was a headwind. And this quarter, was -- third quarter was positive again in the fourth quarter, we're expecting that to be down. I think that normalizes a little bit more as we get into next year.

We had some -- a lot of fluid activity with tariffs and bringing product in sooner and later. And we've also been negotiating with transportation partners and getting some of those rates down. So that's helped us in some of those quarters. And so that's really been the story of freight. The fourth quarter freight is really kind of in line with our Q3. It's just the prior year comparison that's a little challenging.

And then on the product margin, the exclusive brand penetration, we're expecting that to be about half of the 20 basis points of product margin expansion and the other half coming from buying economies of scale and getting better discounts and pricing.

Okay. And then you gave a commentary about openings of, I think, 20 in the first quarter. How should we think about level of openings for fiscal '27? I know preliminary at this point, but how should we think about that overall?

Yes, great question. Yes, the pipeline is very strong for the first quarter with about 20 lined up in the first quarter. The timing of the rest of the stores and the ultimate number as we roll out the rest of the year, we feel confident that we'll be able to open within our 12% to 15% new unit range. But as far as how that flows out, it's still a little early for us to tell.

The next question comes from Peter Keith with Piper Sandler.

This is Alexia Morgan on for Peter Keith. We were wondering with the strength of work boots in the quarter and the success of some of those new strategies you've talked about to reinvigorate that category. Are you reevaluating where you think the category can go long term? And then similarly, are there other categories that you think could be optimized in a similar way?

Yes. Great question. We -- I've been very pleased with the performance of work boots thus far, again, a mid-single-digit comp when the entire business in the quarter was a 5.7%. So we think the marketing, the remerchandising of work boots, getting some better choices for the consumer in from various brands are all helping that performance. All that being said, the work business tends to not comp up as quickly or comp down as quickly as some of the other business. It's a very needs-based kind of stable business. Blue-collar employment has been stable. So I don't see any outsized growth coming. I think we are reinvigorating it, and it's growing from where it was, but it always is a little more stable than what we see in the rest of the business.

In terms of other merchandise categories that we're looking at, we're always looking at places where we can improve. I'm not going to share some of these on this call, but there's a couple of major merchandise categories I feel strongly there's opportunity in. And -- but for competitive reasons, I'll keep those to myself for right now.

Okay. And then one more. We were wondering the sales impacted by the winter storm. Are those stores kind of up and running again? Is trend back to normal there? And then when you've seen storm impact in the past, are sales typically made up? Or like is it delayed or more eliminated?

Yes. The sales impact of the storms, the first of those 2 winter storms that went across the country were more impactful to the business. The second one hurt us in the Northeast last week. Business seems to be back to normal and recovering. As far as a snapback or people going back into the stores and recovering those sales, that's not something we typically will gain back after a storm.

The next question comes from Dylan Carden with William Blair.

Jim, you've kind of addressed this, but the upside to gross margin relative to the initial outlook for the last 3 quarters, is that just some of the volatility in shipping, tariff mitigation uncertainty? And should we kind of limit expectations for that kind of upside go forward? And a related question, kind of as the leverage point on occupancy kind of crept up here as you've accelerated your store growth, I think there's some sort of growing anxiety around kind of margin and how you kind of keep improving profitability. Any broader kind of longer-term outlooks of leverage points and merchandise margin opportunities would be appreciated.

No problem, Dylan. As far as the upside to the gross margin, you're right. It's been a really nice year for us, particularly on the merchandise margin with the full year looking to come in at the high end of the range at 70 basis points better than last year. When we first guided back in May in the middle of all of the tariff news and things coming forward, we had guided merch margin down 30 to flat. And so it's been a really nice pickup for us throughout the year. And I think that's come from a variety of things as we've seen exclusive brands continue to do really well and outgrow what we thought was going to be 100 basis points of expansion this year.

We saw the benefit of the hard work that the merchant team and the planning teams have done around buying the right product and getting that into the stores and in front of our customers and selling that. And so that's provided some upside on the -- what we call buying economies of scale and some of those vendor discounts. And so it has been a nice year. And then the freight, we had some renegotiated transportation contracts that also provided some upside.

So it has been a really nice year, and it's kind of culminated here with 7 years. The last 7 years, we've had over 700 basis points. I think it's 740 is the number, basis points of merch margin expansion. So you're right. The track record has been great. As we look to next year, we're planning to continue to grow merchandise margin. Obviously, we're not guiding how much that we're going to guide for next year. But typically, we would say that it's going to be somewhere in that 25 to 40 basis point range is our starting point. But we'll get back to you on what that number looks like.

But we're not out of ideas. I mean, John has talked about sourcing opportunities, and we're always looking at things around supply chain, logistics as we continue to grow sales at a fast clip that allows us to go back and get better discounts from our vendors or our factories. So we're pretty optimistic looking forward on the margin opportunity.

As far as the leverage points go, we do have a leverage point for buying and occupancy. I think that's maybe where the question is focused, buying occupancy and distribution center costs, we need a plus 7% to leverage that. And that's really just a function of growing 15% new units as we've talked about in the past. This year, that's going to be a little bit higher because of the we've got those 20 stores we're talking about opening in Q1, and those are going to open earlier in Q1 than what we originally anticipated. And so that puts a little more pressure on the current year.

But the leverage point, I expect that to continue to be somewhere in that 7% range as we get into next year, but we'll give you an update on that. What's been nice through all of this is I know the leverage point is high and maybe makes some people nervous, but we're able to -- it looks like we're on track to grow our earnings per share 25% this year, expand our EBIT margin 90 basis points at the high end of the guide. So we're feeling pretty good about where things are, and this is all generating some really nice profitability for us.

The next question comes from Janine Stichter with BTIG.

I was hoping you could elaborate a bit on the pricing strategy for exclusive brands. It sounds like you're taking those prices throughout Q4, but that you've done some speak on what you're seeing? And then maybe just speak to what the rollout looks like in terms of raising prices throughout Q4.

Yes, great question. As we talked about the last couple of calls, we had held lower for longer on exclusive brands. We had gotten to the holiday season. We knew -- I knew we were going to take price increases. We didn't want to disrupt the store team during the holiday. So we had the room, as you saw in the margin growth during Q3 to hold until post holiday. We get to the January time frame. And now we're going style by style and looking at where we can take a price increase that covers the margin rate for that product or maybe a little bit more if we decide to hold on another particular product. So this is a style-by-style conversation.

If you look at the price increases as well as the concessions from our factory and new product that we're bringing in from those factories, these are rough numbers, of course, but you could say it's 1/3, 1/3, 1/3 of where we will see either not -- we don't need to make -- have a price increase because of concessions. We're going to do the price increases at the source at the factory since it's new inbound product or these are products that are already on the ground here, and we need to "catch up" and retag those products either in our DC or in our stores. And that is underway today. So the retags, which is a piece that has to happen here, is happening as we speak. We had a slug of products that were repriced in January, and we will continue to do another group in February and the remainder in March.

Great. And then you mentioned the concessions you got during the peak of tariffs from your suppliers. Is there anything we should be aware of as we think about starting to lap some of those initial concessions? I'm just thinking of things that might not repeat next year.

I think the -- it's a great question, right? As the tariffs rolled out throughout the year, initially, it was a big wave, and we went back and we were able to get some concessions. But as things have normalized throughout the year, we've gotten to a pretty good steady state with many of our factory partners, and those concessions are pretty kind of run rate at this point. Our focus as we look into next year is working on expanding our merchandise margin rate.

And so working with our good partners, moving some product around to other countries that have lower rate. The latest update on India tariffs going to 18% is a positive for us as well. So we think that as we head into next year, we're in a pretty good place with our partners, and we'll continue to challenge them and work on improving pricing, but we feel pretty good about where we are today.

The next question comes from Jay Sole with UBS.

My question is about the exclusive brand websites. John, you touched on it a little bit in the opening prepared remarks. Can you just tell us a little bit more about how your thoughts and your plans have developed for these websites in the last 90 days and what you see going forward?

Sure. We -- as a reminder, we launched codyjames.com and hawxwork.com were the first 2 exclusive brand sites that we had launched. And the goal of these sites always was storytelling. It's the place we can really tell the Cody or the Hawx story to the consumer. It's difficult to do given the way people shop on bootbarn.com. They may look for a particular category of product or they're refining by size, and they don't land on those storytelling pages even if we had built them on bootbarn.com.

So having a dedicated site, and if you go to codyjames.com, you can see the difference in how the brand is represented there and the storytelling that's happening with the videos on the homepage, we can really drive home the ethos of those brands on those sites. So that was the purpose. We want people to want the brands, know the brands and then realize the best place to buy those brands is inside a Boot Barn store and not online.

What has been a nice side effect is the amount of sales that we've seen on those sites. We didn't expect to -- and again, this is a percent of a percent of our business. It's a piece of the online growth to be sure. But it was not something that was expected. And the bigger surprise was most of those customers are net new to Boot Barn. And so this isn't a transference that's happening from sheplers.com or bootbarn.com or the stores. These are people that are discovering Hawx and Cody through the social marketing that we're doing for those sites. So it's been encouraging and encouraging enough that we are all in on having similar sites for CLEO & WOLF, Shyanne and Rank 45, which is our more rodeo-inspired brand.

Got it. Maybe if I can ask a separate question. In the slide deck, you're showing the new store productivity and the payback time on the new stores. I think it looks like basically on the deck, the year 1 net sales of a new store, like $3.2 million. Maybe that's call it, 80% new store productivity or a little bit less than that. Can you just talk about what -- how fast those stores are ramping up to maturity? That's the question.

Sure. Yes. The new stores -- if they're opening at $3.2 million and as you mentioned, around 75% of what a mature store is, the path to get them up to, call it, $4.2 million is around 5 or 6 years. The waterfall has been pretty healthy. We talked about the stores that we've opened over the last few years are resulting in about a 100 basis point tailwind to the consolidated comps, and that's because the first comp year of a new store is comping roughly in line with chain average, maybe slightly better. But in that second comp year, we're seeing roughly a 5-point improvement over the chain average, which helps obviously get their volumes up. And then after that second comp year, they continue to outperform the chain at about 3 or 4 to 5 points better. And so that gets them up there. I think that takes about 5 or 6 years to get them up to chain average.

The next question comes from Jonathan Komp with Baird.

John, I want to follow up just the quarter-to-date acceleration you saw underlying prior to the storms. I know you mentioned it being broad-based, but any other thoughts on the drivers of the strength there? And as you think about the business today, could you talk about just segmenting out what you're seeing across your exclusive brands versus existing third-party brands, but then also new brands as well?

Yes, absolutely. When we look at the acceleration in January and then over the 5 weeks of quarter-to-date, it is mostly transaction-driven. So there is a bit of basket over the 5 weeks. And if you just look at the pre-storm time frame, it was transaction driven. It's balanced. We look at our third-party brands, they are performing well. Our exclusive brands are performing well. Again, it's a small month in the quarter. March is almost half of the quarter as a reminder.

And so it's been a nice start. It has been broad-based. Nothing really else to call out around men's and women's Western boots or men and women's Western apparel, either by brand or exclusive brand versus third party. It has been very steady across kind of all those different ways you could slice the business. I am sorry, go ahead, I'll jump in.

Jon, I mean, the plus 9% is a big number. And as we look back over the last 12 months, the holiday shopper, which is our December shopper does behave a little bit differently than they behave the rest of the year. And so the plus 9% isn't too far out of the range of what we were seeing, if you look at our chart on Page 9 of what we've been seeing in that monthly comp over the last 12 months.

Okay. Great. And then just a follow-up. John, I'm curious on the new units, are there any anecdotes you could call out that give you confidence today looking forward to the long-run target? And then just more broadly on the algorithm, I think pretty consistently in the past, you talked about really a 20% EPS growth algorithm. Is that still the construct or the framework that exists here today?

Yes, Jon, I'll take that one. The 20% EPS is still there. When we moved from -- when we went public, we had a 10% unit growth in our long-term algorithm that got us to 20% EPS growth. As we've shifted that to 15% new unit growth and then 12% to 15%, that does bring down the EPS slightly. And so maybe it's an 18% EPS growth on algorithm just because of the number of new stores that were we're bringing in that still need to comp up. So that's the math behind it.

And then around the unit growth, the -- anecdotally, the new stores perform very much like existing stores. We're not seeing big swings in the merchandise mix. We've said this before, I think, on the public call, you see it even skew a little more western perhaps in non-legacy markets outside of Arizona, Texas, California, given there's not as many independent retailers or as much competition. So when we open stores in Florida, Jersey City, the Northeast, Huntington Beach recently opened, the stores, the business, the composition of it looks very similar to our legacy stores.

The next question comes from Maksim Rakhlenko with TD Cowen.

So first, on exclusive brands, I think previously, the strategy was to maintain similar price points compared to the national brands. So given some of the changes to pricing on both sides as well as the customer reactions, how are you thinking about the price points between the 2 ahead? Could EVs potentially be priced a little bit lower? Or do you think that, that's going to normalize over time?

Go ahead. Yes, it seemed like you got cut off there.

No worries. Yes, we think -- I believe it will normalize over time. The one place I've told the team, I want to be very careful is if we're breaking through a psychological price point, right? If we've got to take a low single-digit price increase on a boot that's going to break it through $200 and it's sitting at $195 or something along those lines right now, I would rather hold on that and try and preserve and grow that merchandise margin rate with a price increase on a few accessories or other goods that -- where those price increases could be easily absorbed. Those are one-off cases, but that's why we're doing this style by style. But I think overall, it will normalize. But if there's places where we can be opportunistic and hold on psychological price points, the team is doing that.

Got it. That's helpful. And then your comps just broadly are obviously very nicely outpacing the industry. So curious, where do you think you're taking the most share from? And specifically, any comments on the Farm & Ranch channel and separately D2C as some of your vendors are going more direct?

Yes. The D2C, we are 90% stores, right? So the D2C guys, they do a nice job, and they can spend a little more on -- or take a lower ROAS, I should say, on some of their advertising from a digital perspective. So they have a little bit of an advantage there. At the same time, they're promoting Western to the world. So they're not a big concern. When I think of the market share and our ability to continue to kind of excel from a comp standpoint, I put much of the credit on the team. When I think of the execution from the depth of inventory, the availability from a sizing standpoint, the field team and the customer service that we offer.

I think those are the pieces that make a difference versus everybody else. And everybody else is independent retailers, it's the Western competitors. And I think it's also general retailers. When you think of us becoming a bit more of a denim destination, I think we're taking market share from traditional department stores where perhaps people bought their Wrangler or their Levi or their bootcut jean at those stores and have discovered our customer service, our assortment and our depth of inventory versus some of those other stores that I've seen recently in channel checks that I've done myself.

The next question comes from Chris Nardone with Bank of America.

We have a quick follow-up on the leverage point discussion. We were just wondering, do you still feel comfortable with the roughly 1.5% leverage point in SG&A as we look out into next year? And then are there any major cost items that are seeing more inflation than normal that we should be thinking about?

Yes, Chris. The leverage point, 1.5% for SG&A, that is right in the range of where we would expect to see that going into next year. As we look at costs that are seeing outsized inflation, I can't think of anything, any line item that is tracking higher than in an outsized way as we move into next year. I think the SG&A line should look much more normalized than what it was this year compared to last year with some of the onetime things we had last year with some legal fees and the reversal of some incentive comp from some management change.

Okay. Very clear. And then on the apparel side, outside of denim, are there any specific categories that are gaining momentum either within your third-party or private label brands? And is there any way that we can gain comfort that the majority of the momentum in this business is still driven by your core Western customer rather than maybe a more fashion or less sticky customer? Are there any anecdotes or facts you can share to give us some confidence on that front?

Yes. I look at the product that sells every week in our stores. I look at our top 50 products across all the major merchandise categories, and it is very much a traditional Western silhouette when it comes to both the tops and the bottoms. Again, we've tried some more contemporary collaborations with different brands that the consumer has self-selected out of. Nothing crazy, nothing on the fashion side, but things that were a little more contemporary and didn't really work in some of those tests.

So every week, as I look at the boots that are selling, some of these boots have -- we've been selling the same style for 15 or 20 years. a lot of broad square cowboy boots. It's not a fashion, our toe roper boot, which is kind of that entry-level cowboy boot on the men's side at least. The women's boots are all very much brown leather boots, and there might be 1 or 2 fashion boots in there that have be dazzling or there white boots that perhaps someone picked up for a wedding. But by far and large, it is traditional Western styles that have been selling for years. So we're not seeing anything in the mix of what is performing that would tell us it's someone coming in to get ready for a concert or an event or are new to Western.

The next question comes from Jeremy Hamblin with Craig-Hallum.

And I'll add my congratulations on the strong results. I want to come back to the initiatives and in particular, the e-comm developments here of your exclusive brands. So just first, in terms of what you've done so far with Hawx, Cody James? What type of impact are you seeing online for those brands on bootbarn.com versus what you're seeing with the Hawx or the Cody James websites? What are the costs associated with that? And in terms of just the timing of rolling out the next few, are they going to be kind of all rolled out in a similar time frame? I just want to see if you could get some color on that.

Sure. As a reminder, if you look at the mix of our e-commerce business, we have bootbarn.com, it's our digital flagship by far, our largest e-commerce site. And then we have other places that we sell, Country Outfitter, Sheplers, Amazon or some of the other channels that we sold on for years. When we look at that bootbarn.com business, which is the majority of our e-commerce business, it continues to perform incredibly well. The customers buying on Cody and Hawx are net new customers. For the most part, these are not people that are transferring over from stores or from bootbarn.com.

So we're quite confident given how we look at the customer profiles and bump them up against our B Rewarded program, our 10.6 million B Rewarded customers and seeing that they don't exist in those databases that we're gaining net new customers. The marketing strategy for those sites are also very different from what we do with Boot Barn. We are driving awareness of those brands via social, where much of the digital marketing we do for Boot Barn is more Google advertising and all the different tools that the Google and Microsoft offer to target people who are already typing in, I want to find a white cowboy boot or I want to find a Western Yoke shirt. These sites are about brand awareness via social versus targeting people who have already told the search engine that they have intent.

So different way to market with them, again, more about storytelling, drive customers into stores. And from everything we see, they are new customers to Boot Barn overall.

On the cost of the sites, one of the -- to the second question, one of the nice things we've done here and anybody can see this if you visit bootbarn.com or these sites, these sites are built on Shopify, and it's just much quicker and easier, and there's not a heavy lift from a development or a CapEx standpoint to do this. And so that's a page from the playbook of many, if not all of the D2C players in any industry at this point. And so if we're -- if the question behind the question is, hey, is this a big CapEx investment on these sites, it's not. We are nimble. They are quick to stand up. We're going to launch Shyanne and Cleo here in Q4 and Rank will likely be in Q1.

Got it. Helpful. And then just one more. In terms of traffic counters and what you're learning from conversion rates, how that's tying into some of the storytelling you're doing and some of the marketing initiatives that you've had, any learnings that you can share with us from that?

Nothing material right now. We are just about to hit comp traffic counters. So we'll have comp conversion rates. I look at our top-performing stores from a conversion rate standpoint on a regular basis. I'm looking for that positive deviance to kind of tease out what they're doing better than everybody else, the ones with material traffic, of course. And we're going to use it in this coming fiscal year, use those traffic counters for some of the new digital marketing initiatives. One of the adjustments I've made is the amount of digital marketing dollars we're going to spend against driving folks or with the goal of driving folks or customers into Boot Barn stores versus just buying on bootbarn.com or any of the other sites. And so we'll have more to share on that as we get into next fiscal year.

The next question comes from Ashley Owens with KeyBanc Capital Markets.

Maybe just to start to follow up on some of the own brands websites here. But as you prepare to launch Shyanne, CLEON & WOLF, just how should we think about the incremental TAM expansion as you get from reaching new female customers who may not be shopping at Boot Barn stores yet?

I think it's gaining market share more than the expansion of the TAM. We upped the TAM from $40 billion to $58 billion, and we're going to do $2.25 billion this year. So when you think of the opportunity, it is more gaining market share than an expansion of the TAM. And it will make us easy -- it will make it easier for us to tell stories from a Meta and TikTok and further up the funnel standpoint when we talk about these brands.

So can we gain more market share? I believe we can. That's part of the reason we're building these sites, but it's market share versus expanding the TAM further. I think it's gaining those country lifestyle women's customers in the case of Cleo and Shyanne.

Okay. Got it. And then just to follow up a little bit on the gross margin for the fourth quarter. Could you just walk us through the clean bridge there as you lap some of the unusually favorable shrink from last year? And then also, I think you mentioned some of the lumpiness in freight, where you expect those to kind of settle as we normalize into next year?

And then another one, just on pricing as you move to that style-by-style approach for the price increases in the fourth quarter, just how you're thinking about AUR given some of the third-party price increases that we've already seen been taken in the market, just what you've seen so far in terms of elasticity particularly where third-party price moves may be already taking place in some of the areas that you have overlap in? And then just any specific categories outside of, I think, the $195 boot price you mentioned that you're more mindful of as you implement these changes?

Yes. I'll jump in and just start with the AUR question as we get into the fourth quarter, we expect that to be in that 2% to 3% increase for the fourth quarter. And that contemplates all the price increases, exclusive brands and third-party goods. And then as we look into next year, we'll give you an update on that more as we move and get further along, but we typically see kind of a low single-digit AUR increase. And maybe that will be slightly higher as we move into next year, just given what we've seen with price increases over the last year.

And then as far as the margin bridge, I'd really think about it as a 1 quarter blip as far as the shrink in the freight. And as we move into next year, those should both normalize and then we'll be back to growing product margin with maybe a slight benefit next year with freight just given some of the renegotiated contracts that we've had and some of the favorability there, assuming that all the transportation costs and rates stay similar more globally.

The next question comes from Jon Keypour with Goldman Sachs.

Just a question about the composition of the 4Q same-store sales guide. It looks like a little bit of a decel online. I just want to get a sense of why that might be the case despite the new sites being up and running and given the strength in 3Q. And it also looks like the kind of other side of the coin is that retail is looking a bit better than I expected despite even the storm impact. So I guess on the retail side, what gives you the clarity for -- behind that guide? And kind of like what have you seen in terms of same-store sales recovery in retail since the storm is mostly abated? And I guess how much of the confidence there is hinging on the March activation maybe around the Houston Rodeo?

Sure. So I think it's a little too soon to talk about the recovery. I mean the second of these storms hit this last weekend and we had some store closures on Sunday and so just a couple of days. So I think what's really giving us the confidence to guide the way we have, both on e-commerce and in stores is looking at the broader trend coming into February and March. We look back at what we saw in October, November, December, January, the sales volumes that we've seen. And then we go back into historical seasonality and see how things flow out from a sales perspective based off of what we've seen in the last 4 months. So nothing that we've seen over the last couple of weeks makes us nervous about the way we've guided that.

As far as the Houston Rodeo goes, there is a little bit of a shift between February and March. If you're looking at our slides, and so some of last year's March strength really kind of moved over from February. There are also other things happening in March that make it a bigger volume month. Spring is starting. People are out there shopping more. And so even outside of the Texas markets where they do pick up the rodeo season, we do see some nice volume there. So we're seeing a broad-based across the country, and that's given us the confidence to guide where we've been there.

As far as the new exclusive brand sites, there's not really any marketing slated for those in -- over the next couple of months, it would be a next year thing. And as a reminder, we look at a 3% marketing spend. And so it would really come from within that budget moving things and reallocating spend around within that budget.

Great. And then a very, very small follow-up -- sorry, go ahead.

No, I just -- I couldn't remember if I covered all of the pieces of the question. So please follow up with the follow-up.

Sure. The last one is just kind of bookkeeping. But you guys mentioned that there would be buying and occupancy costs from 1Q '27 landing in 4Q and you guided for 50 bps of deleverage in 4Q. So that's inclusive of the pull forward. So that's correct, right? So it seems like the actual -- so the organic buying and occupancy deleverage is actually sequentially better than it was in 3Q.

Yes. Right. It's a little bit skewed in the fourth quarter because we -- compared to last year in the fourth quarter, we have more stores opening at the start of the next year than we had a year ago. And we -- the way the bookkeeping works is we record a couple of months of preopening rent while we're getting the store built out, set up, stocked and before we start ringing sales. It's a good news story that we have more occupancy expense. It just pressures us a little bit now in the fourth quarter, but then as we move forward, that's a positive.

Right. And it implies that the actual kind of -- without the pull forward from 1Q, it actually is sequentially better in 4Q than it was in 3Q. That's sort of what I'm trying to get at, right? Like it does actually kind of improve on an apples-to-apples kind of basis. Is that right?

Yes, that's right.

This concludes our question-and-answer session and the Boot Barn Holdings, Inc. Third Quarter 2026 Earnings Call. Thank you for attending today's presentation. You may now disconnect.

Good day, everyone, and welcome to the Boot Barn Holdings, Inc. Second Quarter 2026 Earnings. As a reminder, this call is being recorded.

Now I'd like to turn the conference over to your host, Mr. Mark Dedovesh Senior Vice President of Investor Relations and Finance. Please go ahead, sir.

Thank you. Good afternoon, everyone. Thank you for joining us today to discuss Boot Barn's second quarter fiscal 2026 earnings results. With me on today's call are John Hazen, 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. 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 second quarter fiscal 2026 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 John Hazen. Boot Barn's Chief Executive Officer. John?

Thank you, Mark, and good afternoon. Thank you, everyone, for joining us.

On this call, I will review our second quarter fiscal '26 results, discuss the progress we have made across each of our 4 strategic initiatives and provide an update on current business. In addition, I will be sharing the outcome of a recent study we completed, resulting in an increase to our estimated total addressable market and our long-term store count potential. Following my remarks, Jim Watkins will review our financial performance in more detail, and then we will open up the call for questions.

We are very pleased with our second quarter results, which reflect broad-based strength across all major merchandise categories in stores and online and across all geographies. During the quarter, revenue increased 19% compared to the prior year to $505 million, driven by sales from the 64 new stores opened over the last 12 months and consolidated same-store sales growth of 8.4%.

In addition to strong sales growth, merchandise margin rate increased 80 basis points compared to the prior year period. The strength in sales and margin, combined with solid expense control, resulted in earnings per diluted share of $1.37 during the quarter, which equates to 44% growth compared to the prior year period of $0.95. The team's ability to deliver strong top and bottom line results reflect the execution of our 4 strategic initiatives, which I'll now spend some time discussing.

Let's begin with new store growth. Our new store growth engine continues to exceed expectations, while expanding the Boot Barn brand across the country. Halfway through fiscal '26, we have already opened 30 new stores, and we expect to open 40 new stores over the balance of the fiscal year. Ending the year with 70 new stores opened.

We estimate new stores, on average, will generate approximately $3.2 million in annual sales and pay back their initial investment in less than 2 years. Consistent with our comments last quarter, the new stores opened over the last 6 years are providing an approximately 100 basis point tailwind to consolidated annual comps.

Now turning to our total addressable market and long-term store count potential. The strong broad-based results we have seen across new store openings, merchandise categories and geographies, prompted us to revisit the total market opportunity for Boot Barn. Similar to the study we conducted 3 years ago, we have combined our internal analysis with a third-party study to understand the future potential of the Boot Barn brand.

This work, which is summarized on Pages 4 and 5 of our supplemental financial presentation suggests that the market is substantially larger than our prior estimate and we now believe that our total addressable market has expanded from $40 billion to $58 billion.

Turning to our long-term store count potential. New stores opened over the last few years have consistently generated strong sales and earnings across all geographies, which has emboldened our approach to be a store's first organization. We recently reevaluated our store potential across individual U.S. markets and have combined that analysis with a third-party study to support our estimates.

We now believe that the U.S. store count can reach 1,200 stores, and we expect to open 12% to 15% new units annually. As we look towards fiscal '27, the pipeline remains very strong, including 20 projected openings in the first quarter, which will begin in April.

I would like to thank the entire team for their tireless efforts in identifying quality real estate building and merchandising impressive stores, hiring and training store associates and operating with best-in-class customer service.

Moving to our second initiative, same-store sales. Second quarter consolidated same-store sales grew 8.4% with brick-and-mortar same-store sales increasing 7.8%. Store comp growth was driven by a 6.8% increase in transactions and increases in both average unit retail and units per transaction of less than 1%.

From a merchandising perspective, we saw broad-based growth across all major merchandise categories in the second quarter, led by the ladies business, which comped positive mid-teens. This was followed by the men's business, which comped positive high single digits.

Our denim business, which is included in the categories just mentioned, comped positive high teens. Our work boots business comped low single digit positive and our work apparel business comped mid-single-digit positive. We were extremely pleased to see the broad-based growth across categories continuing from the first quarter into the second quarter.

From a marketing perspective, Boot Barn proudly sponsors hundreds of rodeos and events every single year, we support a broad array of events across the country from local rodeos to national sponsorships such as professional bull riders and National Finals Rodeo, we also have long-standing partnerships, country music artist, Randal Lambert and Brad Haseley, and we recently announced a new sponsorship agreement as the official Boot retailer for the Stage Coach Music Festival.

As the largest western retailer in the nation, we are thrilled to form a partnership between our brand and the largest country music festival.

Moving to our third initiative, omnichannel. In the second quarter, e-commerce comp sales grew 14.4% and bootbarn.com, which is approximately 75% of our online sales comp positive high teens. We are very pleased with the growth in our online channel and attribute a portion of our strong results online to several recent initiatives.

I would like to first touch on the rollout of our new exclusive brand websites, which is one of the early visions I had for the company upon assuming my new role as CEO. The primary goal of these sites was intended to provide a vehicle for brand storytelling and to market our exclusive brands as stand-alone brands, similar to that of our third-party brands.

As part of this initiative, earlier this fiscal year, we launched a new website and marketing campaign for our work brand Hawks, and we duplicated that approach late in our second quarter for our largest exclusive brand Cody James. We are pleased with the initial returns on both rollouts, particularly the large number of net new customers to Boot Barn that are visiting each site.

In addition to building the brand awareness and authenticity we had hoped for, we are also very pleased with the early sales on these sites. Another initiative we believe is driving strong results online is the implementation and integration of artificial intelligence. Our omnichannel team has improved the search functionality on our website, utilizing AI, which now offers the customer a wider range of search results and more product recommendations when they browse the site.

In addition to the new search experience, Boot Barn is leveraging AI to enhance product coffee, support store associates through our Cassidy assistant and develop multimedia training modules. While still in the early stages, we continue to look for opportunities to integrate AI to improve the customer experience and drive efficiencies.

Lastly, our strategy to open new stores not only expands our national footprint, but also benefits online sales. When a Boot Barn store opens in a market, we see a noticeable increase in online sales volume in that store's vicinity. Our brick-and-mortar location legitimizes the Boot Barn brand for a new customer and many omnichannel offerings provide a seamless shopping experience for our online customers to also find our store, benefiting both sales in-store and online.

I am very pleased with the achievements of our omnichannel team and their collaboration with the stores organization to expand the overall business and provide a great customer experience.

Now to our fourth strategic initiative, merchandise margin expansion and exclusive brands. During the second quarter, merchandise margin increased 80 basis points compared to the prior year period and exclusive brand penetration increased 290 basis points to 41% of sales. I'm thrilled with our team's continued ability develop high-quality products to complement the great assortment offered by our branded vendor partners.

I'd like to now provide an update on our pricing strategy. As a reminder, third-party price increases of approximately mid-single digits went into effect during the second quarter. As we discussed on our last call, we made a decision to limit exclusive brand price increases in order to evaluate the customers' reaction.

Over the last several months, we have worked closely with our exclusive brand factories in order to mitigate the impact of tariffs to the business. In some instances, we have been able to keep our total product costs relatively unchanged, allowing us to maintain merchandise margin rate without increasing prices.

In other instances, we are experiencing increases in product costs as a result of tariffs. The combination of partial cost mitigation and our inventory turns have afforded us the opportunity to wait until after the holidays to implement price increases on exclusive brands without adversely affecting our margin rate in the third quarter.

The magnitude of price increases will vary product-to-product based on current costs as well as where tariff rates settle.

Now turning to current business. We are 4 weeks into the third quarter of fiscal '26, and we have continued to see broad-based growth with a consolidated same-store sales increase of 9.3%, driven by an increase in transactions. While we are pleased with the start to our third quarter, as a reminder, October has historically represented 25% of the quarter's revenue with December alone representing half of the third quarter's revenue.

We remain cautious of overall consumer sentiment and macro uncertainty that will continue to manage our -- and continue to manage our business prudently. That said, we feel very good about the current tone of the business, and we believe we are well prepared for a strong holiday season with exciting marketing campaigns, fresh inventory and a well-prepared field organization ready to provide best-in-class customer service.

I would like to now turn the call over to Jim.

Thank you, John. In the second quarter, net sales increased 19% to $505 million. The increase in net sales was the result of the incremental sales from new stores and the increase in consolidated same-store sales. The 8.4% increase in same-store sales is comprised of a 7.8% increase in retail store same-store sales and a 14.4% increase in e-commerce same-store sales.

Gross profit increased 20% to $184 million compared to gross profit of $153 million in the prior year period. Gross profit rate increased 50 basis points to 36.4% when compared to the prior year period, as a result of an 80% -- or an 80 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 better buying economies of scale and growth in exclusive brand penetration, partially offset by higher freight expense. The deleverage and buying, occupancy and distribution center costs was driven by the occupancy cost of new stores.

SG&A expenses for the quarter were $128 million or 25.3% of sales compared to $113 million or 26.5% of sales in the prior year period. SG&A expense as a percentage of net sales decreased by 120 basis points, primarily as a result of lower corporate, general and administrative expenses and legal expenses in the current year period.

Income from operations was $56 million or 11.2% of sales in the quarter compared to $40 million or 9.4% of sales in the prior year period. Net income per diluted share increased 44% to $1.37 compared to $0.95 per diluted share in the prior year period.

Turning to the balance sheet. On a consolidated basis, inventory increased 20% over the prior year period to $855 million and increased approximately 1% on a same-store basis. Total inventory increased as a result of adding 15% new stores and growth in exclusive brands. We feel good about the health of our inventory, and our markdowns as a percentage of inventory are both below last year and historical levels.

During the quarter, we purchased approximately 73,000 shares of our common stock for an aggregate purchase price of $12.5 million as part of our authorized $200 million share repurchase program. We finished the quarter with $65 million in cash and 0 drawn on our $250 million revolving line of credit.

Now turning to our raised outlook for fiscal '26. Driven by our year-to-date results and the strong start to our third quarter, we are increasing full year guidance. The supplemental financial presentation that we released today outlines the low and high end of our guidance range for both the -- fiscal full year and third quarter. I will only be speaking to the high end of the range for both periods in my following remarks.

For the full fiscal year, we expect total sales to be $2.235 billion, representing growth of 17% over fiscal '25. We expect same-store sales to increase 6% with a retail store same-store sales increase of 5.3% and e-commerce same-store sales growth of 13%. We expect merchandise margin to be approximately 50.6% of sales, a 50 basis point increase over the prior year period and includes -- exclusive brand penetration growth of 240 basis points.

We expect gross profit to be approximately 37.7% of sales. We anticipate 30 basis points of deleverage in buying occupancy and distribution center costs due to the occupancy of new stores and 50 basis points of leverage in SG&A. Our income from operations is expected to be $294 million or 13.2% of sales. We expect the net income for fiscal '26 to be $219.6 million and earnings per diluted share to be $7.15.

We plan to grow new units by 15%, adding 70 new stores during fiscal '26. We expect our capital expenditures to be between $125 million and $130 million, which is net of estimated tenant allowances of $39 million. And for the balance of the year, we expect our effective tax rate to be 26%.

For the third quarter, we expect total sales at the high end of our guidance range to be $700 million and a consolidated same-store sales increase of 4.5%. We expect merchandise margin to be approximately 49.7% of sales, a 30 basis point increase from the prior year period, which includes a 200 basis point increase in exclusive brand penetration.

We expect gross profit to be approximately 38.8% of sales, which includes 70 basis points of deleverage and buying, occupancy and distribution center costs. Our income from operations is expected to be $107 million or 15.3% of sales, a 100 basis point deleverage compared to the prior year period. We expect earnings per diluted share to be $2.59.

As a reminder, income from operations in the third quarter last year benefited by approximately $6.7 million, primarily related to the former Chief Executive Officer's forfeiture of unvested long-term equity incentive compensation and the reversal of cash incentive bonus expense as a result of his resignation. We estimate in the third quarter last year that this was a 110 basis point benefit to SG&A and income from operations, and a $0.22 benefit to earnings per share.

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

Thank you, Jim. We are very pleased with our second quarter and year-to-date results and the positive momentum of the business as we head into the holiday season. I would like to thank the entire team for their hard work and dedication. The company's culture and teamwork are truly remarkable and over the past decade have built Boot Barn into the national retailer it is today. .

I am excited about the future growth potential of the Boot Barn brand as we target 1,200 stores across the U.S., and I believe we have the foundation and team in place to achieve this goal.

Now I would like to open the call for questions.

[Operator Instructions] The first question comes from Matthew Boss with JPMorgan.

Congrats on a great quarter.

Thanks, Matt.

So John, could you elaborate on the drivers of October's further comp acceleration? And then on the more than 30% increase to your long-term store target today, does this embed any moderation in unit economics? And maybe if you could speak to regions of largest white space opportunity.

Yes, absolutely. Starting with the October business, it was very much in line with the major merchandise categories that we saw in Q2. The one exception being a nice build our acceleration in work boots from a low single-digit comp to a mid-single-digit comp.

But otherwise, if we look at women's, men's and women's boots, men's and women's apparel, it was very much in line with the performance and the comps that we saw in Q2.

As we look at the 1,200 store count across the country, our average store right now is a $3.2 million door. And we think that the 1,200 stores will be on average with those stores. We have stores today that do a little bit less than that. We have stores who do a lot more than that. So the 1,200 store count is within the algorithm we have for the current stores that we are building.

Yes. And just to clarify on that, the $3.2 million being the new store economics, our average stores, as you guys know, are higher than that.

And then maybe, Jim, as a follow-up, could you just walk through the bridge between roughly 2% comps forecasted for the second half of the year, relative to the October performance 9% plus. Just maybe how much of this is prudent macro haircut versus anything specific to the business?

Absolutely. So similar to what we normally do, Matt, we looked at the most recent sales volume. In this case, it was the last 3 months, August through October. And similar to what we had starting the year, given that macro uncertainty, including the potential for the softening of consumer sentiment in the second half of the year, we applied roughly a 3% haircut on top of that model to arrive at a plus 2% same-store sales growth in the stores, right? So that's the stores methodology.

So if you look at November -- each of the months, November through March, that's kind of how the guidance rolls out a pretty even plus 2% confident to those months with a similar haircut that's what we had at the beginning of the year.

Great. Best of luck.

Thank you, Matt.

The next question comes from Peter Keith with Piper Sandler.

Great results, guys. The TAM increase is pretty impressive from $40 billion to $58 billion, so 45% increase. I was hoping you could just unpack that a little bit? And is it specific categories, age demographics, the proliferation of Western wear? Like what's driving this large increase just after taking it up about 3 years ago?

Sure. So Peter, we partnered with a third party that looked at the demographics of course, across the country, anyone older than 18. We surveyed roughly 8,000 consumers look at the familiarity they had with different brands, eliminated categories that should not be part of the TAM for obvious reasons. Looked at the trend of casualization of wearing occasions in the United States, ask some questions about how likely to wore to wear certain products were they aware of certain types of stores and kind of combine all that information to come up with the new TAM that admittedly included a portion of mainstream denim by no means all of mainstream denim, but we acknowledge that we've become a little more of a denim destination over the last few years and that was incorporated into the TAM as well.

Okay. Very interesting. And then you were referencing on the tariffs with price increases, and I just want to make sure we're understanding it. So the branded prices have gone up, you have not taken exclusive brand pricing yet but you now plan to take exclusive brand pricing up after the holiday and since that imply you're not really seeing the mix shift that you were hoping to into exclusive brands?

Yes, that's correct. We've seen a slight tick up in exclusive brands, and we're at 41% exclusive brand penetration. And there was -- we wanted to see if that penetration could get higher than that. We have not seen consumer behavior change. They're continuing to buy third-party brands, which is good as well.

And as we got through the 6-week kind of test period, we took a moment and we realized that the goods that we're going to sell during Christmas, during the holiday season, there are a few components to the cost structure of those goods. One, some of them were brought in pre-tariff. Two exclusive brands turn a little bit slower than third party, given how much we purchase. And three, we had gotten some onetime concessions from our factories overseas that allowed us to have more margin to support holding prices through lower through the holiday season.

As we get out of the holiday season and the tariff situation has not abated and in some countries such as India, as you guys well know that gotten a little bit worse. We are going to pivot to preserving margin on exclusive brands either by mitigation of tariffs with our factories who have been fairly cooperative, or in cases where we need to raising prices on exclusive brands, and we will be doing this style by style to preserve the rate for exclusive brand as we get into our fourth quarter and into next year.

The next question comes from Jay Sole with UBS.

John, I want to ask you about your comments about the success of the websites for Hawks and Cody James. Given the momentum that you've seen in the success of those plans. What's your vision now for where you can take the exclusive brands? Like what can they become beyond just brands in the Boot Barn store. Can they become bigger? And how would you do that now that you've seen the websites have been successful.

Yes. We're going to continue to focus on making them big as their own brands, which means they're selling kind of pseudo direct-to-consumer on codyjames.com and hawkswork.com, and then -- but the real goal of these sites is to drive the customer into Boot Barn stores. So there's no plans to sell them wholesale or international at the moment.

But looking at the number -- the spend that we've put out, the number of impressions we've had on the sites, the number of folks more importantly, that have clicked through to the sites. And then, again, this was never about driving sales, but it's been a nice additional sales driver in -- in Q2, it was a couple of points of comp on the e-com business, and we weren't expecting much, if anything, from a sales standpoint, it was about the storytelling.

So if I think about the goal going forward for the next 12 to 18 months, it's -- is to make the customer excited about Cody James and Hawks and Cheyenne and Idle Wind and then realize the best place to buy those brands is inside of the Boot Barn store.

So that's helpful. If I can just follow-up with one. Do you plan on expanding the assortment in other words, offering more categories on those websites and maybe you have room for in the Boot Barn stores just as a way to dimensionalize those brands?

Yes. Those sites will carry the kind of full assortment of each of those brands, which I couldn't think of a store that would have the assortment that we have on Cody James or Hawks. We're not going to develop any more product for those sites.

But if you want to see the full assortment of Cody James Western and Cody James Work and then our Cody James in 1978, which is our higher end line of denim and boots. That's the place to do it. It's -- we just an average of 12,000 square feet could never storytell nor represent the assortment in the way that we can on those sites.

And just one other note, it is so much more powerful to tell those stories on the individual sites. So you can imagine, on bootbarn.com, it becomes a little more difficult as the product is all kind of wrapped in with other exotic boots or other denim. So having a dedicated site where we can tell that dedicated story and show the full assortment, we think is going to be extremely beneficial.

The next question comes from Steven Zaccone with Citi.

Congrats on a nice quarter. To follow-up on pricing, can you help us think through the second half, what should AUR be up in the second half relative to some of the commentary you gave? And then I guess a bigger question. Why do you think pricing elasticity has performed better than planned? You seem to be bucking the consumer backdrop and transactions are still strong. How much of this is fashion being a tailwind and you kind of positioning yourself as more of a denim destination.

Yes. Starting with the AUR portion, we think AUR in the back half of the year will be up 2% to 3% with slowing transactions. And we think that will -- that the slowing of the transactions, as Jim said, will be more about the macro than the AUR being up 2% to 3%. We've raised the price on third-party brands by mid-single digits.

And as I said, as we went through this test, we never really saw a change in consumer behavior, and they continue to buy both exclusive brands and the third-party brands, which is a good thing in some ways.

So I think our customer as we look at -- and I know there's been a lot of discussion in the market about the bifurcation between the higher income customer and the lower income customer we're not seeing that. We've been looking at our income brackets and it is incredibly consistent, almost identical to last year in terms of the penetration of the lower-end brackets and the higher-end brackets.

So our customer is need-based, more so perhaps than others. I don't think it's driven by a fashion trend. If I had to point to one difference in our business than perhaps others out there is the needs-based component of it.

Okay. That's helpful. The follow-up question I had was on buying occupancy. So can you help us think through the buying and occupancy leverage point for the second half of the year? And then with the 12% to 15% growth rate on an annual basis for stores, do you see the buy and occupancy point coming down at some point? Or what should we think is the right leverage point at that elevated store growth target?

Yes. Great question. So the buying and occupancy leverage point that we identified at the beginning of the year of a plus 7% comp needed to leverage that remains a place that it's probably inched up a little bit higher, really due to new store opening timing and our ability to open some of these stores a little bit sooner into this year.

And then as we look out to the first quarter of next year, we've got a really strong pipeline with 20 stores in it. And those have actually moved up further in -- within the first quarter. And so we've got some preopening rent that we'll be expensing in our fourth quarter that we didn't anticipate.

So that's kind of the leverage point. So call it 7.5% this year higher than we would like, but for all good reasons of being able to get some really good stores in the queue and ready to be opened up.

As far as the 12% to 15% . We talked over the last few years of how we -- when we accelerated from a 10% to a 15% new unit opening pace that did create a higher leverage point. I think we're about at the point where those are into the system, and we're kind of at this 15% run rate. We're finishing our fourth year of 15% new units. And so in the next year or 2, I could see that coming down a little bit, maybe it goes down to a plus 6% comp. And then after that, we'll just kind of have to see where we land.

But with strong openings of 12% to 15% in the future, even after the next couple of years, I don't see that going down much more just because the volume of stores we will continue to open up will put some pressure on that. But stay tuned. We try to keep you updated every year on what we're looking at for the upcoming year.

The next question comes from Max Rakhlenko with TD Cowen.

Congrats on all the momentum. So first, in your [indiscernible] store analysis, can you speak to where you see the bigger opportunities for growth ahead regionally? And then as you think about store growth, could we see stores potentially get a little bit bigger, I think that that's what you did a few years ago. So just curious how you think about the right store size to generate the strongest productivity.

Yes. As we look at the 1,200 store opportunity, we're going to continue to open stores across the country broadly. We've learned much in the last few years about where we've opened stores and what has worked best. But for competitive reasons, we're not going to go into what we've learned on the call, but we feel very, very good about that road map to open those 1,200 stores.

And to the question on size, it's going to be real estate dependent if -- you saw the -- what happened with Party City. Maybe there were some bigger boxes that became available. So it's going to be more about location than anything. So we're going to continue to be flexible in the size of the box more so about where it is and its location than the actual size itself.

Got it. Okay. That's helpful. And then, Jim, you previously discussed an opportunity to reach a mid-teens EBIT margin over the longer term. With some of the changes that you've made to sourcing exclusive brand mix as well as -- as well as exclusive brand margins, the improvement that's still to come there over the next couple of years. Do you see an opportunity to reach that sooner than you previously expected internally? And then just what's the way just thinking about the margin level that the business can generate as you do get closer to this 1,200 store target.

Yes. Great question, Max. You're right. We've talked about that target. It used to be 10%. We moved past that, and now it's been 15% for a couple of years now, the target operating margin. We had said probably 2 or 3 years ago that it would be about 5 years to get to that 15%. We -- at the high end of our range this year, we will -- assuming we achieve that, we will have grown operating margin 120 basis points over a 2-year period.

So I would say we're ahead of schedule on that operating margin goal. I think we're going to have to see how we guide next year and the impact of tariffs and the macro and what that does for us. But the opportunity to continue to build new stores in great locations is encouraging. I would say the sourcing strategy that John has talked about for a couple of quarters that were in the early days of implementing. I think there's some really good opportunity to grow margin from that.

But as I talked about on the previous question about the buying and occupancy, we do need pretty solid comps that kind of cover that side of it. So I think long answer to your short question, I think there's opportunity to get to 15%, maybe a little faster than we thought. But I don't want to promise anything beyond that at this point.

Got it. That's super helpful. And best of luck.

Thanks.

The next question comes from Janine Stichter with BTIG.

I wanted to ask a bit about the geographic performance. Curious if you're seeing anything different regionally -- and then anything you've seen in terms of weakness with the Hispanic consumer, it doesn't seem like in the results, but something other companies have called out. So just wanted to see if you were seeing it as well.

Yes. We did mention in, the geographic kind of comment and I think it was the script that we're seeing nice growth across all geographies. Similar to what John said earlier about for competitive reasons, I don't want to get too far into the detail on which geographies are performing better, but I would say we saw a pretty widespread growth across the country.

And then as far as the Hispanic customer goes, we have looked at the demographic information that we have, and we really haven't seen much of a change in the shopping behavior of that customer.

Great. And then just a quick one on tariffs. I think earlier in the year, you had said $8 million of tariff headwinds. And since there's been some changes in rate, but it also sounds like you're maybe taking a little bit more price on the exclusive brands after the holidays, where does that number shake out now relative to the initial forecast?

Yes. I think it's still -- the purpose of the $8 million number was to kind of size up where tariffs were kind of big picture, we've been seeing some really big numbers and wanted to bring that into perspective. And at the time, talked about there being a lot of moving parts of fluid environment.

The tariffs that we spend on inventory don't necessarily get expensed to the P&L until it gets sold, which maybe 6 or 9 months later. And so that's not a number we're going to provide an update to at this time.

The other piece of it is with the mitigation strategies that our team has been taking and working with the factories, we're able to get the cost of our -- of the manufactured goods down they're willing to negotiate that down knowing that we have to pay a higher tariff. And so you have a little bit of a blend between what's tariff and what's really lower cost and how that works.

So it becomes a little bit difficult to quantify that number as well. So what I would say is that we've factored in tariffs into the margin guide that you see for the balance of the year, and we feel pretty good about that.

Best of luck.

Thanks, Janine.

The next question comes from Dylan Carden with William Blair.

Curious now that you're sort of rethinking longer-term TAM store opportunity. Where does online penetration kind of net out in your estimate? It seems like with the growth in AI initiatives, it could be higher, if not meaningfully so. And if that's any sort of -- if there's any repercussions from that from a margin standpoint, I think historically, online has run slightly below retail.

Yes, Dylan, the online business and the team is doing a great job. As you saw in the release, we had a plus 24% in October. The business is doing very, very well. They're investing in technology. They're investing in AI. The very nice challenge they have is we're going to open 70 stores with an AUV of $3.2 million, and that's the equivalent of the bootbarn.com every year. So we think it's going to continue to hover around 10%. I don't see any tectonic shift in that penetration anytime soon.

The next question comes from Jonathan Komp with Baird.

I want to ask, John, if you could talk a little bit more about some of the merchandising initiatives that you're pursuing and the effectiveness, whether it's across some of your third-party brands or categories?

And maybe within that, specifically for denim, I know denim accelerated Q2 last year and your -- I believe you're cycling double-digit performance now and looking forward. So any thoughts on the ability to sustain some of the momentum there would be great.

Yes, absolutely. The buying team, the merchants, the visual merchants in the store, they've all done and I've been in a lot of stores recently, have done an incredible job from a merchandising standpoint. Our inventory levels of full-price seasonal merchandise are in a great place. We're at very, very low levels. from a clearance standpoint. And we really have become more of a denim destination.

So when we started to cycle that those strong denim numbers from last year, those are stronger on the men's side. So we still have a little bit of room to grow on the women's side. And as we come into holiday, we're going to be pushing both third-party and exclusive brand denim more so to the front of the store and having better merchandising of that denim.

I've said it before and I'll say it again on this call, as I look at the top 10 styles in women's denim or men's denim, it is almost exclusively boot cut jeans. It continues to be while folks are coming to Boot Barn to buy their denim, it is very still a traditional silhouette in most cases.

With a nice mix between third-party and our exclusive brands, we do skew a little more exclusive brands in women's denim. But -- yes, as we go into holiday, denim is absolutely a focus. And we weren't quite where we needed to be last year from a women's standpoint, we are, to your point, comping the men's side of it, and that will be kind of a comp business, but we feel great about denim going into Christmas and the holiday season.

Okay. Great. And then, Jim, if I could follow-up just as you're thinking about setting guidance here for the second half comps, I think you had some helpful color. Is there a way to think about sort of the range of outcomes you've thought into the second half? I know you -- it sounds like you hear cut for macro, but -- have you contemplated any potential tailwinds from stimulus? Or just any other context around range of outcomes that you see given the recent momentum here.

Yes. Yes. No problem, John. The -- it is a wide range of outcomes, right? I mean, we would love it if there wasn't an impact from the macro and the haircut that we put in there was not necessary. And I know many will ask us about how strong the October business is. And it's -- while it's 4 weeks of business and the slower month of the quarter. It's exciting to see how strong the comps are and how well the business is doing.

We haven't contemplated or included in there a tailwind from stimulus or any of these bills that come through that might drive some construction or infrastructure build or any of that, it's just too hard to figure out what quarter that would come into. And so that is not included in there. But we feel good about the full year 4% to 6% same-store sales guide and kind of how we've built that I don't know if I have anything else to add there?

The next question comes from Sam Poser with Williams Trading.

I've just got a couple. One, just -- how many stores by quarter for the balance of the year? I mean, how should we think about that just as a housekeeping, how many sure you opened in Q3 and how many in Q4?

We've got 25 stores in Q3 and 15 in Q4.

And then secondly, one of the things you talked about on the last call in regard to denim was how you narrowed and went deep into the assortment. I'm wondering how you're applying that same concept or if you're applying that to what degree you're applying that same concept to other categories, especially in boots across the company and where you are in that if that is something you're working on.

Absolutely, Sam. It's a great call. We have a group of styles that we call tried and true. It's the top 3% to 4% of styles that make up a disproportionate portion of our sales. And there's been a focus from the merchant team to ensure that we're always in stock on those styles. And I'm proud to say that the team is at 90% in stock on those very small number of styles, roughly 1,000 styles that make up a much larger portion of sales.

So that focus has started with that kind of aha moment with denim a year ago. carried through to the rest of the business. There's always more work to be done for sure. But we are absolutely pursuing tried and true or that going deeper on those trade and true styles.

And are you -- when you talked about this before, are you doing that by region? Like are you getting into the sort of in the weeds with it down region and district levels? Or is that part of the opportunity? And given -- and where were you last year in stock on those tried and true as a comparison.

Yes. The -- I don't have the percentage in front of me for last year on the tried and true. It definitely was not 90%. And I think -- to your question on the weeds, I think there is opportunity there. I think what we do is we get down, and this is a function of spending a lot of time in stores. We get all the way down to individual store levels, but what we're not teasing out, I think, is perhaps how we approach it at the district or even the region level.

I'll be in stores and go, why do we have XYZ here or we don't have this there. And this happens with all of us visiting stores. So we get too far down into the weeds at the store level and also need to do that a little bit further up at the district of the region level.

The next question comes from Chris Nardone with Bank of America.

So just going back to the price elasticity part of the conversation. Just curious if you're seeing more elasticity in certain categories when compared to others, maybe is like work showing less elastic to diverse fashion.

We really haven't seen a change in consumer behavior outside of -- there was one particular brand that raised prices by close to 15%. And we saw a drop -- it was a small brand, but we saw a change in their business. When we -- when you think about AUR increases, the mid-single-digit increases really did not change the consumer behavior anywhere with the exception of this one particular brand that had a much higher increase in their MSRPs, and we saw a demand drop off.

Got it. Okay. And then just as a follow-up. Overall, are you starting to see some more new emerging competition in the western category given the recent strength -- and do you also suspect the holidays will be more promotional relative to last year if you take into account some of the pricing actions from third-party brands.

I'll start with the promotion piece. I don't think it will be more promotional than last year. Our promotional cadence is almost identical to what we had last holiday season. This has always been a very rational industry when it comes to promotions, and I think and I believe it will continue to be so. So we are going to have a promotional schedule very similar to last year.

And we haven't really seen any new recent emerging brands come forth. There are always new entrants into the market. I think at times when, in particular, like ladies Western boots become a little bit more in style or faster than some of the more mainstream fashionable department stores and others will sell that, and then they'll get out of it if it slows down. But we haven't really seen any significant sizable entrants into the market.

The next question comes from Jeremy Hamblin with Craig-Hallum Capital Group.

And I'll add my congratulations to the team. I wanted to ask a question on just some of the margin dynamics that you're seeing. So last year, fiscal '25, we knew that there was some catch up on incentive compensation and you saw a pretty nice gross margin expansion. This year, you've got headwinds, obviously, related to tariffs.

And yet your gross margin looks like it's going to be flattish. You're getting nice leverage on SG&A. And this is all kind of with comps roughly similar to what you did in FY '25. And as we look ahead, I wanted to see if there were other dynamics that we need to think about in FY '27, not that you're guiding, but are there other dynamics that we should be considering here as we look ahead into calendar '26, either on the gross margin or the SG&A side? Or do you think that the leverage points here, all else being equal, meaning no meaningful changes in tariffs. Would you suspect that, that's going to play out similarly?

I would expect it to play out pretty similarly. The leverage points that we laid out at the beginning of this year, the buying and occupancy is 7%. It probably stays within the range, maybe it comes down a little bit. SG&A probably comes up. This year, we just needed to be at flat and that probably goes back up to 1.5 or 2.

So I think those things stay pretty similar. We do have a little bit of quarter-to-quarter noise. I called out in my prepared remarks about lapping the reversal of incentive-based compensation in the third quarter that we're up against. But on the full year, I think that it should look pretty similar. There's not anything that we know of now that would be throw that out of whack.

Great. And then just as a follow-up question on exclusive brands, so you did some testing here over a 6-week period. You're taking a little bit of price to offset some of the tariff implications. But as you think about penetration of that going forward now with the rollout, very successful with codygames.com. Do you suspect that you're going to get a similar type of step-up in your exclusives? Or do you think the combination of maybe price increases potentially limits the amount of growth that you see in that? .

I don't think the price increases made a big difference in either direction. Again, that's what we were testing for the 6 weeks and the consumer continue to buy what they wanted to buy, which was third-party or exclusive brands. And so we will pivot post solid to preserve margin.

I think longer term, we still are comfortable with getting to 50% exclusive brand penetration, 100 to 200 basis points a year. over the next several years. And again, the codyjames.com site, well, I'm thrilled with the launch of it and the reaction we've had to it. it launched in the last 2 weeks of the quarter.

So it's still very, very early days in terms of what it will do for promoting the entire Cody James brand. So more to come there. But for right now, we're still tracking or looking to that 50% EV penetration over the next 4 to 5 years and 100 to 200 basis points of growth a year. So kind of more back to normal versus where we've been testing over that 6 weeks of lower for longer.

The next question comes from Corey Tarlowith Jefferies.

Great. I wanted to ask about the store count updated analysis. How do you think about the new stores and where the opportunity is in new versus existing markets that you have line of sight too?

Sure. It's really going to be -- I guess the last time we updated this, Corey, we had more of the new and existing market opportunity as far as there are states we hadn't been in yet or markets we hadn't been in. And now that we've gone across the entire country and open stores, we -- we'll continue to open stores across the entire country. We're not going to get into details on which markets we're going to go heavier into versus others just for obvious competitive reasons, but we do feel very confident in the road map we have.

Okay. Got it. And then just on the updated TAM analysis as well. When you updated the TAM analysis a few years ago post doing it for the first time around the IPO, it felt like the positioning around that update was like, hey, we're actually penetrating this whole new customer base called Just Country and there's this whole opportunity there. And now you've just upped it by another roughly $20 billion, $18 billion. Is there another kind of customer that you're going after? Or what do you see is driving that next leg of growth in the total addressable market.

Sure. It's really the country lifestyle, the Western and the work have all expanded in the size of the TAM. So we didn't provide that in the prepared remarks, but in the analysis, those expanded. And then John mentioned that mainstream denim has become more of what we sell. And so that's given us part of that increase in the TAM also.

The next question comes from Mitch Kummetz with Seaport Research.

Can you guys elaborate on the recent strength of the e-com business? I mean, John, you referenced the 24% gain in October [indiscernible] on top of a 14% a year ago and you've got now 3 months where you've done on top of double digits. So is there anything more you can say about that what's driving that?

Yes. There's a few different components. We took a look at where that 24% comp was coming from. And one of the new Chief Digital Officer and his team, they've made some nice enhancements around search and other things on the site. We're thinking that's driving north of 100 basis points of that comp.

But the biggest pieces are the new channels, so the additional sites, Cody James and Hawks, as well as our ability to spend more in the paid space. So there has been, and I'm sure you see this in your own life, there has been a change in the paid algorithms, both with Meta and with Google over the last several months, and we just have an ability to continue to attain the ROA we're always looking for, which is north of a 4% and spend into those sales more so than we were able to do in the past.

So the new channels are a piece of it, the paid and the paid social are a piece of it. And then organic is also a piece, which is, I think, a reflection of the strength of the brand. We see 400 basis points of that growth coming from additional organic traffic coming from the site. So it's people who know the Boot Barn brand. So it's not one particular thing. It is across new channels, paid traffic, site enhancements and organic.

Great. Appreciate that color. And then my follow-up, just on the dedicated exclusive brand websites. Is there opportunity for you to do that for other EVs? Or -- and if so, kind of what rollout might you be looking at?

There is. We have 1 for Idle Wind, and we always had 1 Idle Wind since we started that relationship with Lambert, but we will be rolling out holiday, a site for Cheyenne, which is our other large women's Western brand, and we'll keep going from there. These have gone very well. We like the ability to tell stories in a very different way than we can on bootbarn.com. And so Cheyenne will be launching post holiday.

The next question comes from Ashley Owens with KeyBanc Capital Markets.

Just wanted to start off really quickly with work. I think it came similarly to what we saw in the first quarter. I would be curious as to if your view on that category has evolved at all, particularly around whether some of the prior headwinds have fully normalized if there's still more recovery to go? And then I know you've highlighted that comp trends tend to be lower than the rest of the business, but just anything from an opportunity standpoint to further accelerate this [indiscernible] especially seeing as work has expanded under this new identified TAM you've outlined?

Yes. We are -- I am definitely not ready to declare victory on work. We've seen a nice acceleration in comps in October, again, small months, 4 weeks of the quarter. But work boots is doing better. It has comp positive for 2 quarters in a row now. And now the first month of this third quarter, it's comped to mid-single-digit positive.

And work apparel has continued to comp mid-single digits now for at least 6 quarters. So we're doing quite well on work apparel. This has been a work boot issue -- the relay of our work boots that we talked about on the last call is complete, has only been complete. I'll caveat this for 2 to 3 weeks at this point.

But anecdotally, we're hearing from store managers from district managers from customers that is much, much easier to shop, work boots by size and by style. So I'm encouraged by the first few weeks of this. It's been hard to or difficult to tease out rainier cold weather of October versus the work boot relay to figure out what drove that mid-single-digit comp, but the early read is October is did do better than Q1 or Q2, which were both positive. So we're heading in the right direction with work boots. We are not ready to declare victory.

Okay. Got it. That's super helpful. And then just one follow-up on the stores. How has effectively doubled or essentially going to double from the 301 in '22 to crossing over 600 next year potentially? You've now outlined this new long-term opportunity to double again towards 1,200. Would just be curious as the base continues to scale that quickly, while you're managing the added operational complexity that comes with a larger fleet, while protecting that culture and some of the in-store standards that have really helped to set you apart?

Yes. No, it's a great question, and it's a challenge. And I think we've done a few things to help manage that. I think for starters, the store operations team has done a really nice job of getting these stores opened and they're working extremely hard. And as we grow the store base, we add districts. Each district has roughly 10 stores in it. And so we have a district manager over each of those districts and they're able to help with those store openings, and we continue to train new store managers, whether they're an internal promotion or a transfer that needs less training.

And if they come from outside, we'll train those store managers in an existing store to try to help them develop the culture and learn the process operationally. The opening the new stores is heavily reliant on our real estate department and the team that we've got there in identifying these locations and managing the leases and the updates and all different kinds of things that are involved in that, the construction of these stores.

They've proven to be just incredible on getting these done, and they will expand as we have more stores that need to be opened, and then the folks in the DCs and managing the product flow and the merchant teams I could go on, but we are careful in how we expand head count in the -- in the company, but we're also very careful on who we hire and making sure that the culture fit is -- works well so that we don't lose the magic that we've got here at Boot Barn.

This concludes our question-and-answer session in the Boot Barn Holdings, Inc. second quarter fiscal 2026 earnings call. Thank you for attending today's presentation. You may now disconnect.