Boot Barn Holdings, Inc. Aktie

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.

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

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

Thank you. Good afternoon, everyone. Thank you for joining us today to discuss Boot Barn's First 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 first 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 first quarter fiscal '26 results, discuss the progress we have made across each of our 4 strategic initiatives and provide an update on current business. Following my remarks, Jim Watkins will review our financial performance in more detail, and then we will open up the call for questions. We are very pleased with our start to fiscal '26 as first quarter results significantly increased compared to the prior year and exceeded our expectations. First quarter revenue increased 19% to $504 million, and consolidated same-store sales increased 9.4%.

In addition to strong sales growth, merchandise margin rate increased 180 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 $1.74 during the quarter, which equates to 38% growth compared to the prior year period of $1.26. 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. We opened 14 stores in the first quarter, ending the period with 473 stores across 49 states. Our new stores continue to exceed expectations across all geographies and are projected to generate approximately $3.2 million in annual revenue and pay back in less than 2 years. We are on track to open 65 to 70 new stores this year in both legacy and new markets.

In addition to strong revenue in their first year of operation, new stores are also helping drive same-store sales growth once they turn comp. New stores opened over the last 6 years currently comprise approximately 40% of our comp store count and have outperformed stores opened prior to 2019 by approximately 350 basis points over the last year. resulting in more than a 100 basis point tailwind to consolidated comps.

We are very pleased that our new stores are continuing to attract new customers and grow sales after their initial opening, which couples nicely with our sales and customer growth in legacy stores. This underscores the growth potential of our new store initiative as we believe we have the market potential to double our store count in the U.S. alone over the next several years.

Moving to our second initiative, same-store sales. First quarter consolidated same-store sales grew 9.4% with brick-and-mortar same-store sales increasing 9.5% and Store comp growth was driven by an 8.5% increase in transactions and a 1% increase in units per transaction and flat average unit retail. From a merchandising perspective, we saw broad-based growth across all major merchandise categories in the first quarter, led by the combined ladies Western boots and apparel businesses, which comped positive mid-teens.

This was followed by the combined men's western boots and apparel businesses, which comped positive high single digits. Our denim business, which is included in the figures just mentioned, comped positive high teens. Our work boots business comped low single digit positive and our work apparel business comped high single-digit positive. We are extremely pleased to see the broad-based growth across categories continue through the first quarter.

From a store operations perspective, I am proud of the team's performance, delivering strong results and best-in-class customer service during an especially busy quarter.

In the first quarter, the team was able to open 14 new stores, navigate the complexity of several large-scale remodels and work through labor-intensive reticketing on third-party goods. I would like to extend a heartfelt thank you to the entire field organization for their hard work and dedication. Moving to our third initiative, omnichannel. In the first quarter, e-commerce comp sales grew 9.3% and bootbarn.com, which is approximately 75% of our online sales comped low double-digit profit. We are very pleased with the momentum in our online business and the continued innovation from our omnichannel team. The team is actively advancing its AI initiatives, including the rollout of our new AI-powered search functionality on our websites.

Boot Barn now leverages AI to enhance product copy, support store associates through our cast D assistant, develop multimedia training modules and power the new search experience. In addition to improving our technical abilities, the team's focus on being a store's first organization continues to generate benefits. More than half of our online orders are being fulfilled by the stores, which helps increase merchandise margin and provides the customer with a broader assortment of merchandise to shop.

Buy Online Pick Up in Store and Ship to Store have both reached record levels, which will drive increased traffic to our stores, help to reduce shipping costs and improve customer loyalty as we encourage them to shop both in-store and online.

Now to our fourth strategic initiative, merchandise margin expansion and exclusive brands. During the first quarter, merchandise margin increased 180 basis points compared to the prior year period. Remarkably, merchandise margin rate has increased approximately 630 basis points over the last 6 years or over 100 basis points per year on average. First quarter exclusive brand penetration increased 250 basis points to 40.6% of sales. I am proud of the team's commitment to drive sales growth while increasing merchandise margin and growing exclusive brands. From a marketing perspective, we are using the creative teams outstanding content to further support our own exclusive brands, starting with our leading work brand, Hawks. In the first quarter, we launched a new website and marketing campaign for Hawks that focuses on work boots and clothing for blue collar workers across industries.

We are encouraged by the early returns and the positive results give us confidence to move forward with our strategy to market our exclusive brands directly, and we expect to launch a direct marketing campaign later this year to support our leading men's brand at Cody James.

I'd now like to provide a recap on our pricing strategy as it relates to tariffs, which remains consistent with what we shared on our call in mid-May. We have received third-party cost increases from our vendor partners and our field organization has begun reticketing these items to reflect the new MSRP. We expect the reticketing of third-party items to be completed by the end of August, resulting in maintaining merchandise margin rate.

For exclusive brands, we are planning on hold -- we plan to hold off on price increases until the fall in order to gauge price elasticity. We will then review exclusive brands by individual style to determine if we should raise or hold price on certain items, which could result in giving up margin rate in order to maintain or gain market share.

Now turning to current business. We are 4 weeks into the second quarter of fiscal '26 and we have continued to see broad-based growth as consolidated same-store sales increased 11.7%, driven by an 11% increase in transactions and a 1% increase in average unit retail. While we are pleased with the start to our second quarter, we are mindful that July was the softest month of the second quarter last year. We remain cautious of overall consumer sentiment and macro uncertainty, and we'll continue to manage our business prudently.

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

Thank you, John. In the first quarter, net sales increased 19% to $504 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 9.4% increase in same-store sales is comprised of a 9.5% increase in retail store same-store sales and a 9.3% increase in e-commerce same-store sales. Gross profit increased 26% to $197 million compared to gross profit of $157 million in the prior year period. Gross profit rate increased 210 basis points to 39.1% and when compared to the prior year period as a result of a 180 basis point increase in merchandise margin rate and 30 basis points of leverage in buying, occupancy and distribution center costs. The increase in merchandise margin rate was primarily the result of better buying economies of scale, lower freight expense and growth in exclusive brand penetration.

The leverage in buying, occupancy and distribution center costs was driven by lower incentive-based compensation and lower distribution center labor cost in the current year period, partially offset by the occupancy cost of new stores. SG&A expenses for the quarter were $127 million or 25.1% of sales compared to $107 million or 25.2% of sales in the prior year period. SG&A expense as a percentage of net sales decreased by 10 basis points, primarily as a result of lower incentive-based compensation in the current year period, partially offset by higher marketing expenses due to timing.

Income from operations was $71 million or 14.0% of sales in the quarter compared to $50 million or 11.9% of sales in the prior year period. Net income per diluted share increased 38% to $1.74, which compares to $1.26 per diluted share in the prior year period.

Turning to the balance sheet. On a consolidated basis, inventory increased 23% over the prior year period to $774 million and increased approximately 2.7% 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 below last year and below historical levels. During the quarter, we purchased approximately 78,000 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 $95 million in cash and 0 drawn on our $250 million revolving line of credit.

Now turning to our raised outlook for fiscal '26. We are increasing full year guidance due to our first quarter results and the strong start to our second quarter. We are maintaining our original guidance for the second half of the fiscal year, which assumes that the uncertainty around tariffs and the resulting impact on consumer spend will result in flat comps in the second half of the year and unmitigated tariff expenses will increase our cost of goods sold, resulting in a merchandise margin decline in the second half of the fiscal year. The supplemental financial presentation that we released today outlines the low and high end of our guidance range for both the full year and second quarter. I will only be speaking to the high end of the range for both periods in my following remarks.

For the full year, we expect total sales to be $2.18 billion, representing growth of 14% over fiscal '25. We expect same-store sales to increase 3.5% with a retail store same-store sales increase of 3.0% and e-commerce same-store sales growth of 8.5%. We expect merchandise margin to be $1.10 billion or approximately 50.3% of sales, a 20 basis point increase over the prior year period, which includes exclusive brand penetration growth of 160 basis points.

We expect gross profit to be $812 million or approximately 37.2% of sales. We anticipate 50 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 $277 million or 12.7% of sales. We expect net income for fiscal '26 to be $206 million and earnings per diluted share to be $6.70. We plan to grow new units by 15%, adding between 65 and 70 new stores during fiscal '26.

We expect our capital expenditures to be between $115 million to $120 million, which is net of estimated tenant allowances of $35 million. And for the balance of the year, we expect our effective tax rate to be 26%. As we look to the second quarter of fiscal 2016, we expect total sales at the high end of our guidance range to be $495 million and a consolidated same-store sales increase of 6.5%. We expect the merchandise margin to be $249 million or approximately 50.3% of sales, a 70 basis point increase over the prior year period which includes a 250 basis point increase in exclusive brand penetration.

We expect the gross profit to be $178 million or approximately 36.0% of sales which includes 60 basis points of deleverage in buying, occupancy and distribution center costs. Our income from operations is expected to be $53 million or 10.7% of sales a 130 basis point increase over the prior year period. We expect earnings per diluted share to increase 34% to $1.27.

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

Thank you, Jim. We are very pleased with our first quarter results and the positive momentum that has continued into the current quarter. We continue to be confident in our ability to execute on our 4 strategic initiatives and drive growth in the current fiscal year and over the long term. I would now like to open the call for questions. Operator?

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

Great. And congrats on the next quarter.

Thanks, Matt.

So John, could you speak to drivers of demand strength in the first quarter and elaborate on the acceleration in July, notably the double-digit transactions? And then if you could just walk through the bridge math to flat comps in the back half of the year.

Yes, absolutely. Yes, as you said, Matt, we went from -- the transactions went from 8.3% in Q1 to double digit in July. So almost all of that Comp growth in July was driven by transactions. AUR was up 1% in July as some of those price increases have started. The performance was really broad-based. It was strength across all of our regions. We saw positive comp trends throughout July across all major merchandise categories, but the 1 worth calling out is denim. We continue to believe that denim is going to be -- we're going to be a denim destination. It's a standout category for us, especially on the women's side, across both third-party brands that we carry and our own exclusive brands. And we delivered double-digit growth in both men's and women's denim during the quarter. But that transaction growth, I have to give credit to our team, both from a store operations side and how they convert those customers in store as well as the marketing team that continues to lean into cultural moments that really resonate with our customer.

Looking to the back half of the year, as we said on our first call, we had applied a hair cut to Q3 and Q4 to those flat comps -- and we still believe, given all the noise around the macro environment that there will be could be some softening of consumer demand during that time. That flat comp in Q3 and Q4 is not a result of solely mid-single-digit price increases on our third-party brands, but rather the macro environment continued to be somewhat at risk.

Great. And then maybe, Jim, as a follow-up, could you speak to what you saw on markdown levels relative to a year ago in the first quarter and then here in July? And what's embedded in your merchandise margin outlook as it relates to promotional activity and pricing in the second quarter and back half of the year?

Sure. The markdowns have continued to be low, pretty low or very low, I should say, when compared to last year and also historical levels, pre-COVID they're very low. And so we're expecting that to continue with us, the markdowns to be low. We feel that our inventory is in a very healthy position. It's fresh. We've got the inventory that we want as we head into the back half of the year in this most upcoming quarter.

Next question comes from the line of Peter Keith with Piper Sandler.

John, you had mentioned around Haw's that you're starting to do some marketing and branding around Haw's. And I know -- I think you did some marketing with Cody James had some concert activity earlier in the year. So I'm wondering if this is a new initiative around exclusive brand marketing? And could that sort of be an early indicator of distribution of these brands outside of Boot Barn over time?

Yes. Peter, it's when I took the permanent role, we kind of talked about the adjustments I was going to make under the 4 strategic initiatives, which were the sourcing initiative, our exclusive brands and reinvigorating the work business. And the 1 that we've made the most progress on thus far is the exclusive brands piece. It's easier to move quickly on some of these marketing initiatives. We've been very pleased with the early results around Hawks and our ability to advertise the brand using Meta's tools to target blue collar customers, we weren't otherwise be able to target and find. And it's been a pretty material spend over the quarter that's resulted in millions of impressions and over 1 million sessions as well to the Hawk site that we launched a bilingual site in both English and Spanish.

Cody James at the Morgan Wallan Festival in Gulf Shores, Alabama. It was a great success. We've had a lot of coverage, again, millions of impressions and real views around that concert. And it was the first time we sponsored a stage at a concert with 1 of our exclusive brands. So that was exciting as well.

We're going to -- I've directed the team to take Cody James and mimic or copy paste what we have done with hawks and launch a dedicated site for Cody as well and implement many of the same marketing techniques that we used with Meta's tools, along with some other initiatives, specifically for Cody James.

So I'm very encouraged by the early results. There are no plans currently to sell the brands at wholesale to other companies and other retailers, not to say it couldn't happen 1 day. But for now, we're going to focus on driving these brands at Boot Barn.

Okay. Very good. And on the tariff-related price increases, are the supplier price increases kind of the same as when you updated us 3 months ago. I think China and various tariffs have moved around quite a bit. Is it still kind of at that mid-single-digit level. And then it's probably early, but any read on product where prices have gone up, if there's been any demand shifts?

Yes, it is still that mid-single-digit price increase. We're roughly halfway through the ticket -- the re-ticket in stores. We will be completed by the end of August. And so all the third-party price increases will be completed, as I said, at the end of August, and we're going to hold lower for longer on exclusive brands and see what that price elasticity looks like. It's too early to see if there's been -- we haven't any slowdown in any particular brand because of price increases, you can see the July we had was quite nice. And while an excessive brands performed nicely in Q1, that was prior to any of the price increases. So it's still too early to see the impact of those price increases.

Next question comes from the line of Steven Zaccone with Citi Group.

I want to stick on the existed brand questions for a moment. So could you talk a little bit more about the strategy for that lower for longer pricing? Will you kind of take it month by month to measure elasticity? And then just bigger picture, right? How much bigger can exclusive brand penetration be? It seems like a year where there's a lot of disruption from tariffs. Could we start to see exclusive brand penetration stay above this 40% threshold for some time?

Yes, it was above 40% for Q1, and we expect it to stay in that range throughout the rest and slightly higher than that for the remainder of this fiscal year. We've said publicly that we'd like to get -- I'd like to get exclusive brands to 50% penetration over the next 5 to 6 years, so 100 to 200 basis points of improvement a year. There may be a larger increase this year with some of the lower-for-longer strategy that we are testing. That window is October pre-holiday or those reticket or price increases on exclusive brands would have to happen post holiday. So if you think of the windows where we either hold or increase prices on some items or many items on the exclusive brand side, it's really October or January are the 2 windows for those price increases.

Okay. Understood. And then I guess the follow-up I had, just as we think, maybe, Jim, on the cost side of the business, focusing on SG&A, has anything changed in your thinking around the year in terms of hurdle rate for SG&A through the balance of the year?

No. The hurdle rates still remain where they were when we guided them a couple of months ago. Just a reminder, that we could leverage this year SG&A at a flat comp. And so we've got some leverage modeled in for the year. And at the margin side of things on the EBIT, we expect to leverage that at a 3% comp for the year. And maybe that comes down just slightly because the merchandise margin guide for the year has gone up just slightly.

Next question comes from the line of Jay Sole with UBS.

It was an interesting stat you gave on the prepared remarks about how the newer stores are comping better as they mature. And I guess the consumers in those local markets get more aware of them. I think you talked about the stores over the last 6 years, but do you see any nuances between, say, stores open like last year or the year before versus stores that are open maybe 4 or 5, 6 years ago, if you do, can you talk about those?

Sure. We haven't seen significant differences between the different class years and kind of talked about that a little bit on the most recent call or the last call about how the early open stores in that 6-year period are outperforming the stores in the more recent periods. And so they continue to gain momentum as they age. And as we look at each of those class years, it's a very consistent behavior and improving and really driving comp waterfall, but then also looking at those legacy stores and seeing that those older stores are still adding good volume despite all the new stores that we're adding.

Got it. And I guess just thinking about what the productivity per store should be given just a huge growth during the post cohort period and then sort of normalization and then now where we are today. I mean do you feel like it's sort of smoothed out to where you're seeing consistent trends. And if so, what should the average store like a mature store deliver in terms of sales per store in a given year?

Yes. We haven't put a target number out there. We've talked about it in the past that the new stores open at 75% of a mature store. And so if you do the math, you'd get to roughly at $3.2 million as the sales volume in year 1 for a new store. It's roughly $4.2 million of -- or a more mature store or legacy store. But we plan on growing the comps in those legacy stores into the future. And so that number will continue to go up and the way we're thinking about the business.

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

Nice job on all the momentum. So first question is on exclusive brands. Can you walk us through the journey of how you're thinking about where product margins can go over time? I think previous comments made it sound like you think that the opportunity to drive upside is quite large. And I think that you do have a new VP of sourcing. So just curious how we should think about that on a multiyear basis?

Yes. The new Head of Sourcing is on board. Jennifer started a few months back. She's been amazing and a great add to the team, and she's in the process of hiring a full sourcing team here, 10 to 12 folks that we're going to be hiring on the sourcing team. That being said, the gains from sourcing are going to be into mid-'27 -- and for a full year, it's going to be Fiscal '28 by the time we see the gains on the sourcing side. We do think it's going to be over 100 or 200 bps. We think there's an opportunity there, but we are, but that is -- could be multiyear to get there. She's meeting with all the factories. The team is going through recosting exercises with many of the factories. So we're not ready to guide nor commit to what those sourcing margin gains will be, but we still believe that there is opportunity there, and that's why we're building out this team.

Got it. That's helpful. And then on the work side, so with that now flipping positive on both sides of that business, do you think that you can maintain that? And do you think some of the challenges are now behind? Or is it more about just easier compares? And then how do you dissect what this set would happen to that business as it used to be pretty steady, pre-pandemic?

Yes. If we look at all the way back to Q1 of last year, we were a negative 1 in work boots. And in this particular quarter, we were a plus 1 in work boots. It has been very steady. Admittedly, Q4 of last year was the toughest comp at a negative 3.1%. But in general, it's a steady business. I'm not ready to declare victory on boots by any means yet. It is still comping well below the rest of the business, it traditionally does. It doesn't go up or down as much as some of the other merchandise categories. But I still think there's work to be done on the work boot side. And again, early days of the Hawks initiative, the Cody James marketing will be around the work, the Western and the 1978. So there'll be another hit of Boot Barn work marketing coming as we get into September.

And hope to have another good update for you guys next quarter. But I don't think it's going to -- there's nothing to indicate that it's going to fall off, but I'm not ready to declare victory that we've gotten work boots back to where they should be in a low single-digit comp for the quarter.

Next question comes from the line of Janine Stichter with BTIG.

Question first for John. Just want to hear your thoughts on the competitive landscape. I know when we were initially going through all this tariff volatility, it seemed like there was going to be a lot of disruption with some of the independents in the market. I'm curious anecdotally what you're seeing in a broader market and if you still see a share gain opportunity from some of the volatility

Yes. I think we're not uniquely disadvantaged as we look at what's happening with tariffs in the market. Everyone will be facing into the same MSRP increases -- and I think our exclusive brands and the inventory position that we are in heading into our Q3 or the holiday season, puts us in a nice place relative to the competition. Again, this industry -- 1 of the great things about it is it's very rational from a promotional standpoint. And I respect all of our competitors greatly, -- but you do see some of the smaller mom and pops kind of regress and take less risk when they run into these disruptive situation. So I do think we are in a better position than most, if not all, as we head into the holiday season, given our exclusive brands and given how we've approached the last few months.

Great. And then maybe for Jim, on the gross margin, I just want to clarify when does tariff inventory actually start to hit the gross margin? I'm wondering if we have a period here in Q2 when you have ticket increases, but you're not yet flowing through the higher tariff.

Yes, that's a correct assumption. So as the price increases go into place on the cost side of things, we're purchasing those goods, but we'll have goods that are in the store that are still purchased at the lower price. And so as we're raising the MSRP that we've been given by the third-party vendors that come along with those cost increases, there is a period of time that kind of in the middle of the second quarter here where we will have a little bit better of a margin opportunity, and you're seeing that in our guide for the quarter as we've got our merchandise margin up 70 basis points. That stays with us maybe to a lesser degree in the third quarter, but a little bit as we head into the third quarter.

Next question comes from the line of Jonathan Komp with Baird.

I want to ask about inventory. It looks like quarter end, it was up less than 3% on a comp store basis. And just given that you're guiding to flat comps in the back half. Is there a risk that you could actually run to lean or run out of goods that you need based on how you're aligning your buying plans?

It's a great question, John. We feel very good about the inventory flow that we've got. If you think about the positive comps that we've got guided here in the second quarter, you're right. Normally, you would see a little bit higher inventory heading into that period, but we've looked at the inventory that we've got, the inventory that's in transit and on order and feel that we've got enough inventory to handle the guide that we've put out there, but also some upside if we needed to if we have the good fortune of beating the guide that we put out there, we think that we'll be in a good spot.

Okay. That's very helpful. And then, John, maybe a bigger picture question. You're clearly putting your own stamp on the 4 strategic priorities. Just as you approach in a few months, 1 year our interim leadership and permanent leadership. Are there any new entirely kind of entirely new initiatives or new priorities that you're considering or just any other thoughts you have on sort of next frontier of growth opportunities?

Yes, absolutely. No, I I'm comfortable with the big 3 adjustments that we are making now, the sourcing, the exclusive brand marketing and really treating those brands truly as real brands. and then reinvigorating the work, both how we merchandise the work boots in stores, how we talk about work in general and approach the blue collar customer in the tradesmen.

So I catch myself. I think often about different things that we might want to do over time, but it's a lot harder to maintain simplicity and focus than a complexity trap. So sticking with these 3 for the foreseeable future. And yes, there's other things that I think about perhaps as we go into next year. But I think sourcing the marketing piece and work are enough adjustments for the team at this point in time.

Next question comes from the line of Chris Nardone with Bank of America.

So just looking at the 2Q guide, can you just remind us what drove the inflection last August in your business? And just whether you're comfortable with the category mix that's driving the momentum as it relates to faster product versus your core products?

Yes. So as we went back to go back to last year, we saw a kind of a steady increase as we started the year and really, if you look at May, things turned positive in May and then we -- June was positive again, July was general softness in retail. And if you go back and look at our last year transcript, we talked about some toughness in the business from hurricanes and some hot weather out west and different things. And then the business strengthened in August, and we were seeing some broad-based category growth as we look back a year ago in August. And so since August, the business has been in that mid- to high single-digit range really for 12 months now, we had a couple of exceptions February being the most notable. And so as we head into the month of August, we've got the business guided. We think accordingly, it's more in that mid-single digit or low to mid-single-digit comp range for August and September to reflect some of the stronger comps that we had beginning a year ago, but we like where the business is positioned. We think the consumer is pretty healthy. They're shopping with as well. And I think we can carry this momentum at least for the next couple of months. And then John talked earlier about how we're thinking about the back half of the year. beyond that and with some of the pressure the tariffs and consumer sentiment may pose for us.

As we look at -- and I'll just add in, as we look at the fashion side of the business, as you mentioned, the penetration of women's apparel is up slightly versus Q1 of last year, but that's entirely driven by our denim business. And I do believe we're becoming a jeans destination. And so it's not anything kind of truly fashion or apparel that driven outside of jeans or denim that is driving that business.

Got it. That's very clear. And I was just in a follow-up. I was curious how big your denim business is today? And then is that pretty well rounded across men's, women's different styles, -- if you can just elaborate on the denim strength, that would be really helpful.

Yes. The denim business -- sorry, as we look at the penetration of denim, it's roughly half the men's apparel business and lessen that on the women's side. I don't think we share the total penetration of denim typically here, but it's, call it, half of the men's apparel business and slightly less than that on the women's side.

Next question comes from the line of Jeremy Hamblin with Craig-Hallum Capital Group.

And congrats on the strength of the business. I wanted to come to the store openings. You've seen some of the best kind of new unit productivity, opened 14 in the quarter. Wanted to get a sense for the cadence of the $65 million to $70 million guidance for the remainder of the year. Do you expect that to be evenly split? Or any color you might be able to share on that here for the last 3 quarters?

Yes, absolutely. Yes. So we opened 14 stores in Q1. We plan on opening 16 in Q2, which would get us to 30%. And the remaining of the stores, the remaining stores will open over the back half, and we haven't mapped out exactly how many in Q3 and Q4. So call it the 35 to 40 stores will open in the back half of the year.

Great. And just to dig in a little bit deeper on where you're opening the new stores in that kind of outsized AUV, you're getting at $3.2 million. Is this going to inform how you're thinking about where to put stores in FY '27 and beyond? And have you considered at all even potentially taking a slightly higher unit growth opportunity given how well the business is performing.

Yes -- great question, Jeremy. We're thrilled with how well the new units are opening I think the 15% growth or new unit openings that we've been doing in the last 3 or 4 years now, it seems to be working pretty well for us. As you know, that number continue -- that results in a higher number of stores we have to open each year. And so I don't see us expanding that on we've already got a the 15% new units just to make sure that we're getting the right locations, we're being patient and not trying to rush those new units and then also operationally, making sure that we're not taxing the field team too much. The distribution center folks and just we're doing it prudently. So I think that, that probably stays where it is for right now and doesn't expand beyond 15%.

But just to clarify, as you look into FY '27 and beyond, you feel comfortable with that roughly 15% unit growth even as the base gets larger.

Yes. I think we're comfortable with that. It's something that we're always looking at. We haven't guided next year yet. And so we can't give you an exact number of the stores that we're going to put out there, but the 15% is something that we've stated and we've done that for 4 years and feel good about for right now.

Next question comes from the line of Sam Poser with Williams Trading.

One, how much -- have you narrowed the assortment within the stores? And if so, how much is a narrow and deeper assortment may be helping you? Or how do you foresee that driving sales and margins going forward?

It's. Yes, I think we have gone deeper for sure in denim. We -- I've been in many stores over the last several months, and I've heard from store partners and managers across the country how much happier they are with the depth of our denim inventory and people can come in and buy make multi-unit purchases in the same size at once, which they struggled with in the past. So I think the place that, that has happened, the most really is denim. I think we're pretty steady state as we look at men's and women's apparel. We do have our tried and true our top styles that drive a disproportionate amount of business that we're always focusing on the top 3% of styles that drive almost 40%, 50% of the business depending on the quarter.

So we are always focusing on those tried and true, but I think the biggest difference is on the denim side and how well inventory we are both in third-party denim and in our own exclusive brands.

And then within the flat comps in the back half of the year, is that flat in Q3 and Q4? Or do you foresee -- how would you flow that?

Yes. We have it flat in both Q3 and Q4 -- we stated on the last call that if not for tariffs and macro uncertainty, those would have been plus 3% in Q3 [Audio Gap] and given everything that's going on in the macro environment, we are holding that guidance and we'll update it as we get to the next call.

Next question comes from the line of Corey Tarlowe with Jefferies.

I just wanted to ask on price increases. Is there perhaps like a time line that you could give in terms of when you're expecting to see these price increases come through? And then just on the exclusive brand penetration. Has that changed at all as you've tweaked the pricing across the other brands that you sell in your store?

Yes. So as we said a little bit earlier, I'll just walk through that time line 1 more time. We have received price increases from many third-party partners or vendors. We've started to reticket those items in stores. We're about halfway done with the reticketing process, and the reticketing will be complete by the end of August. So the price increases, which are mid-single digit that we've received from third-party vendors will be done end of August.

We are holding lower for longer on our exclusive brands, and we really have 2 windows where we can increase price on exclusive brands as well to preserve rate. And those windows are October and then into January, post holiday, obviously, can't do it in November or December. So we're going to see how brand penetration performed against third-party vendors over the course of September and probably the first week or 2 of October and make the call style by style on what we keep lower and maintain pricing on versus what we increase prices on to preserve margin rate.

Understood. Just no color as of yet based on reactions.

No, it's still early days. With half of these items, roughly half of the styles being reticketed and that was really completed within a week or 2 of where we are right now at the time of this call. It's still too early and haven't seen any change. We had nice EV penetration throughout Q1. So the penetration we talked about was not driven by some dislocation between pricing of EB and third-party brands.

Next question comes from the line of Ashley Owens with KeyBanc Capital Markets.

So to follow-up on the exclusive brands questions a bit. I Would be curious at all how you plan to communicate or market some of that pricing differential to consumers over the next couple of months what levers you have in place to drive incremental sales to exclusive brands by choosing to hold those prices? And if it could carry on further past January.

Yes. We generally don't talk about price. We've never been a very promotional retailer, very full-priced business. And I'm personally, especially from some past experience in other positions I've had at other companies. I'm very careful about being promotional or talking about pricing because it's hard to walk back from that. So we know that many of our customers come to bootbarn.com and they browse the product on bootbarn.com before going into stores.

And as you filter and look at different products and different price buckets, they'll be able to see that price differential there, but I don't see a world where we're going to be screaming it from the rooftop and putting it in e-mails that were still pre-tariff pricing like you see in the automotive industry and things of that sort.

So I don't think we're going to take the approach that you perhaps have seen and other businesses. That being said, a lot of these prices, especially on the boots side of things. there are psychological price barriers that have been breached with some of these mid-single-digit price increases where now, we have a boot that's under $200 and other boots are now above $200. So I think that will work in our favor.

But I don't think we're going to have kind of a pre-tariff pricing marketing campaign in any way around this. And we'll let the consumer choose and they'll see the pricing, whether they be in stores or they're doing their research at home on bootbarn.com before coming in.

Okay. Got you. And then just as a follow-up. We know you're performing really well in denim. It's been seen by some other brands in apparel and really trying to capitalize in on this and some of the denim tailwinds we've seen this over the past week. Just any plans to lean into additional marketing there?

We're doing things in stores. So we're focusing on fit guides and talking about denim in stores and making sure our partners are educated on the different fits and the different rises, especially on the women's side. So denim guides that each store partner will have are going out as we speak. I think they landed in all stores over the last week or so, and they look great. So we're going to be educating partners on denim. And our denim continues to be very much our boot-cut silhouette as you would imagine, given our business and given the footwear or the boots that we sell. And so it really comes down to the rise, the stretch, the different types of boot cuts that continues to sell very well for us. I don't think we're going to have any real kind of denim or gene campaign like others have seen over the last couple of weeks who have [ American Eagle ] and some others. I think we'll continue to market who Boot Barn is and our broad assortment of product that includes denim, but no large dedicated denim campaign in the works right now.

Next question comes from the line of Jeff Lick with Stephens.

And congrats on a great quarter. John or -- John, I was just wondering, what is typically the spread between exclusive brands and the national third-party brands? And how much will it widen here in this interim period? And I'm curious, does your research indicate like just how much does exclusive brand adoption kind of revolve around price or and/or once you try it, you get a lot of repeat customers because it seems like you're running an interesting little test tube here with pricing.

Yes. The spread between exclusive brands and third-party brands, and we've said this publicly for several quarters is generally 1,000 basis points, is what we've seen up until now. The honest answer is we don't know how much price and especially a psychological price barriers are going to play into the customer's choice. And that's why we're running this kind of large-scale elasticity test. We have the opportunity to stay lower for longer. And EV penetration, while we want to get to 50% over the next 5 to 6 years, 100 to 200 basis points increase per year. It's been our experience that sometimes that isn't a straight line kind of growth, and there has been step function jumps in the past. And let's see if this can be 1 of them, and we don't know how the customer will react to holding these prices. If everything else has gone up and people seem to absorb inflation quite well as they have overall the last 4, 5 years, -- it may not be a factor. But if the boot starts with the 2 and or starts with a 199 or 189, it may make a difference. But that's why we're running this test, and that's why we're going to decide style-by-style where we hold and where we increase price to preserve margin rate.

I'm just curious, did you have kind of detailed conversations with different vendors about, hey, this is kind of what you're going to be what we're doing and did any vendors say, "You know what? I'll keep the price the same. I don't want to go through that test. I want to lose share.

No. The vendors have been -- look, they are dealing with a very difficult situation, a very fluid, very dynamic situation, and it's very -- it was all -- especially today on tariff day eve, I suppose. -- it's almost impossible for them to do this style by style. They -- many of the vendors have put these mid-single-digit price increases across the Board to kind of insulate them against these increased costs and tariffs. And so they had to do it across the board and they couldn't -- they're not going product by product or style by style. And so for them to back off of that across the entire industry, I think, would be difficult them to do. But we said it on the last call, and I think most of them are aware that we're taking this tax if they've listened to the call, but we haven't had any of them come back and say, "Hey, we're going to rewind some of those price increases or resin them. That has not happened.

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