Greetings, and welcome to the Boot Barn Holdings Inc., Third Quarter Fiscal 2016 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to your host Jim Watkins. Thank you. Mr. Watkins, you may now begin.

Thank you, Tim. Good afternoon, everyone. Thank you for joining us today to discuss Boot Barn Holdings Inc third quarter 2016 earnings results. With me on today's call are Jim Conroy, President and Chief Executive Officer; and Greg Hackman, Chief Financial Officer. A copy of today's Press Release is available on the Investor Relations section of Boot Barn's Web site at bootbarn.com. Shortly after we end this call, a recording of the call will be available as a replay until February 16, 2016 on the Investor Relations section of the Company's Web site. I would like to remind you that certain statements we will make in this presentation are forward-looking statements and 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 in this conference call and webcast, we refer you to the disclaimer regarding forward-looking statements that is included in our third quarter 2016 earnings release as well as our filings with the SEC referenced in that disclaimer. We do not undertake any obligation to update or alter any forward-looking statements, whether as a result of new information, future events or otherwise. I will now turn the call over to Jim Conroy, Boot Barn's President and Chief Executive Officer. Jim?

Thank you, Jim, and good afternoon. Thanks everyone for joining us. On today's call I'll be providing a review of our results, followed by a discussion around the key drivers of our core Boot Barn business. Then I’ll update you on the further progress we've made integrating the Sheplers business that we acquired last June. Following that, Greg will review our financial performance in more detail and provide our revised outlook for the fourth quarter and full year fiscal 2016. Finally, we will open the call up for your questions. In the third quarter, we further solidified our share in the western market archiving almost 50% growth in sales as compared to the same quarter last year. This growth was comprised of the sales contribution of the newly acquired Sheplers business and 22 new Boot Barn stores opened during the last 12 months partially offset by a 2% decline in consolidated same-store sales. During the quarter, we opened five new stores bringing our year-to-date total store openings to 18. We expect to open four new stores in the fourth quarter of this fiscal year. As a group, new stores opened during the past two fiscal years are in line with our three-year payback model. Having said this, some of the more recent stores within this group that have opened in market impacted by oil and other commodities have faced some of the same macro challenges impacting the broader chain of stores. Each stores while still EBITDA will have a longer payback period which has been offset thus far by new store openings in other parts of the country. Accordingly, we have adjusted our development plan to focus on areas that are not being impacted by some of the macro headwinds we're facing. From a same-store sales perspective, we continue to…

Thank you, Jim. Good afternoon, everyone. I would begin by reviewing our third quarter results and then update you on our revised outlook for fiscal '16. In my discussion I will be commenting on both actual and adjusted results, excluding any one-time cost, to facilitate comparability. Please reference today's Press Release for all definitions and for a reconciliation of GAAP numbers to these non-GAAP adjusted numbers. In the third quarter, net sales increased 49% to $194 million. As Jim mentioned, this was driven by the sales contributions from Sheplers, 22 new Boot Barn stores opened in the last 12 months, partially offset by a 2% decline in consolidated same store sales. Adjusted gross profit increased 41% to $65 million compared to gross profit of $46 million in the third quarter of fiscal ’15. In the core Boot Barn business, we did not make meaningful changes to our pricing strategy during our promotional holiday season. There was a slight decline in merchandize margin of 10 basis points at the core Boot Barn business comprised of higher freight costs partially offset by better markup associated with increased private brand penetration. In the Sheplers business, we significantly reduced the number and magnitude of promotions in the stores resulting in a healthy increase in merchandized market margin for the converted Sheplers' locations. Sheplers e-commerce merchandize margin was slightly lower compare to the prior year third quarter. On a combined basis, the Sheplers business including both stores and e-commerce achieved an increase in merchandize margin. We feel good about the margin performance in each of our businesses. At the consolidated level given that Sheplers historical margin is lower than core Boot Barn, the composition of the businesses this year with Sheplers, as compared to last year when we did not own Sheplers, resulted in a…

Thank you, Greg. Our external headwinds are bringing some challenges to our business in the short-term. I'm pleased with how we continued to execute during the third quarter. We significantly increased our revenue, achieved double-digit growth in e-commerce sale and adhered to our pricing strategy, resulting in inventory that was well positioned for the current quarter. We also completed the integration of Sheplers which has further expanded our store footprint, augmented our e-commerce capability and further strengthened our competitive positioning. I would like to express my appreciation to the combined Boot Barn and Sheplers team for all their hard work as we integrated the two businesses. As we work to drive continued improvement in the near term, I remain confident in our ability to continue to execute on our long-term growth strategy to further expand our store footprint and improve merchandize margin, while further solidifying our position as the largest omni-channel western and work retailer in the U.S. Now, I'd like to open the call to take your questions. Tim?

At this time, we will be conducting a question-and-answer session. [Operator Instructions] One moment please, while we pull for questions. Our first question comes from the line of Matthew Boss of JPMorgan. Please proceed with your question.

So, I guess a top-line question, if you broke down the same-store sales that you saw during the third quarter here, what kind of trends are you seeing in some of your more mature markets such as the California? And then secondly, is Sheplers the primary improvement to account for the return to positive same-store sales quarter-to-date?

So on the first piece the California, Arizona and Nevada kind of markets are in the third quarter performed very much in line with historical Boot Barn comps, a very solid mid single-digit comp, which gives us tremendous confidence in the overall model for Boot Barn and gives us the sense that once we are able to power through some of the short-term headwind, the model is still very compelling. On the second part of your question, we've seen sequential improvement in a number of different places across the company between the third quarter and fourth quarter admittedly we're only five weeks into the fourth quarter. Sheplers is only a portion of that improvement.

And then just a follow-up on margin, so positive gross margin ex-Sheplers with 70 basis points buying an occupancy leverage. What's the company bi on a consolidated basis once that Sheplers is fully integrated to lever buying an occupancy and then also SG&A? Any help there would be great.

Yes, we haven’t fully modeled our I'll say fiscal '17, but we believe it's roughly a 2% comp to leverage occupancy and a 1% comp to leverage SG&A.

Our next question comes from the line of Peter Keith of Piper Jaffray. Please proceed with your question.

So just to follow-up on Matt's question about some of the sequential improvements, it sounds like Sheplers isn't the sole reason. You mentioned in the prepared remarks, you'd taken action to drive sales, so I guess that might be impacting the broader base. Could you give us an understanding of what some of those actions are?

Sure, it is in merchandising, marketing, e-commerce, digital et cetera, so we are taking it through some of the high points from a merchandizing standpoint, we've done a few things to broaden the assortment around work boots and extending into performance work boots which you might think of more like a hiking boots and that has been something that we've rolled out across the chain. Consistent with that we have added a tremendous amount of work boots for the Sheplers business in total so this two are related. We've been refining our work apparel assortment, the work apparel business has been driven for a while by flame-resistant product when the oil boom was growing and with that as a headwind now we've been bringing in a few other work apparel lines that are a little bit lower price point they typically don't need to be flame-resistant and we've seen some nice growth opportunities there. We have had an initiative underway for a year plus around the front door of the store which includes jewelry, home, accessory products and when you combine all of that together it's a descent size business for us and that has shown nice sequential growth between third quarter and the fourth quarter. Just quickly on from a marketing perspective, we have continued to get better and more sophisticated from an analytics standpoint mostly on our direct mail program, so we spend some piece of direct mail almost every month. And with that, we're mining our B Rewarded database of customers and our team here with -- along an external consulting firm has continued to get better at finding a higher ROI of our direct mail spend. So I would kind of bundle that all together in CRM analytics. So those are some of the things that we're working on. I guess the last piece is we really double down our store training, our in-store training from a customer service standpoint with a focus on building and selling culture.

Okay that's great color, Jim, appreciate it. Maybe give us specific kind of parse the of course the core boot you guys have classified those for commodities/energy impacted states, are those states here in the fourth quarter or they got stabilizing at a negative rate have they gotten any worse with the precipitous decline in oil we've seen in the recent weeks, could you give us some color there?

Sure, it's a bit of mixed bag and it's a little hard to give you some color and have you extrapolate it, the Texas business is still negative, it has gotten slightly better sequentially. And that of the four states is the biggest by far, the city in North Dakota which is heavily relying on fracing specifically is still very much under pressure, I am not sure of if that is better or worse but it's still significantly down. So that's a little bit of color for what's happened sequentially in those four states.

Okay, thank you for that and them may be I am pivoting to a question to Greg, just help understand the balance sheet the Company's dynamic, so you're at 3.3x at the end of the third quarter, should we think about that from a company standpoint the lower watermark of the year just based on seasonality or if we look at it a couple of quarters you could potentially be below that in some other quarter outside of Q3?

Yes, Q3 was going to be our lowest ratio of month because of the significant cash we generate in that quarter and our ability to leverage our inventory, of our AP on those inventory purchases during our quarter returned more quickly. We haven't worked on 2017 guidance, we do expect to see year-over-year decreases or deleveraging if you will but the frequent brew is going to the lowest ratio in any year.

Okay, great, one last question for me then, so we're getting a lot of investor questions about store growth, I know you addressed some of this at ICR so we just want to get an understanding of the timing, I think you said you were e going to assess the store growth strategy and the comp trends over the coming months, if you were to decelerate store growth I guess would we here about that on the Q4 call just to kind of set up expectations for the coming months?

Yes, our intention would be that to outline our fiscal ’17 guidance on our Q4 call which I think would be scheduled logically in May.

Okay and right, so the assessment of store growth will just be based on kind of how business trends between now and then and how you kind of package, you want to package the whole year together?

That's right, that is right so I guess the heart of the matter, the question beyond the question to give you a bit of color now, if we think about how we've put out long-term strategy together 10% new unit growth and we reflect on the last couple of years where we opened 18 stores and then 22 stores and then added the Sheplers acquisition, both the same-stores in that 22 stores were greater than 10% growth. We do intend to continue to grow new units going forward, based on business as we look at call it 90 days worth of selling we might temper that a little bit but we don't expect that number to come down, very materially so you might think about 15 stores for fiscal '17, if we're sitting here today that number might be refined once we get through our full year guidance and really have modeled out the next couple of years, but I wouldn't expect that number to be five, I wouldn't expect that number to be 30.

Our next question comes from the line of Randy Konik of Jefferies. Please proceed with your question.

So just want to go back to the just the macro affected states, what is the -- can we get just the math again around the negative impact from a top-line and a margin contribution standpoint that you can kind of give us some kind of color there on what the impact would be? That's my first quick question.

Yes sure, the four states are about 30% of sales for the company, the margin impact would be well roughly the same and the margin across the different parts of the country are roughly the same. So, I'd figure it about 30% of the business.

But those margins are call it if you think about the margin contribution of those there is certainly more promotions there and fixed cost deleveraging those areas, I think, I'm just trying to figure out so how disproportion the margin impact has been from the just related to sales volume so you know what I mean?

So, on the merchandize margin piece -- but we're really not much more promotional there, our -- as you know, Randy, we -- if our sales softened we're not typically faced with the situation where we're running heavy clearance to run through or move through unsold products. I suppose there are occasions where we'll run a market specific promotion, those are typically around rodeos they're not typically around an area that just has typical business. And so saw with the merchandize margin component is till the roughly 30% of the total, I'm not going to enhance the deleveraging piece I mean it is usually seen specifically like that.

Right, I think these stores, with the stores within those four states are somewhat representative of the entire chain, so I think that the flow through on a sales mix in those four states, is going to flow through similar to what you would see on a decline in sales in any -- on the chain as a whole.

Got you and then as it relates to Texas, I think that has gotten a little bit more encouraging, is there any more perspective you can get there, it is getting a little bit better, or better than worst, it is something that it is led by stabilization or would it better in work or less non-work how should we think about that kind of dynamic?

The areas that are growing are Work Boots, work apparel not really that much flame-resistant work apparel. So I would and of course we feel better about an improved trend in Texas sequentially quarter-over-quarter but it is still -- we're still watching it very closely monitoring business on a week-to-week basis, there is -- where we feel better but it is still concerning to us to see the Texas business comping negative.

Got you, okay. And just my last question, your commentary around on the total combined ecommerce business up double-digit, is there any more clarity you can give on the differential between the Bootbarn.com business versus the Sheplers business ecommerce site, and if one is over bit more promotional versus the other, is there anything gleaming from the disparity in the trends of what consumers are gravitating towards on the one would say relative to the other, just trying to get some color on what you're seeing there? Thanks.

It's a fair question and I think the natural hypothesis would be that the more promotional site is outpacing the less promotional site they are both growing quite nicely but bootbarn.com as a growth rate without sheplers.com in growth rate, I would actually chop that up to two things, one, with base of business at Boot Barn is just much smaller than the base of business at Sheplers. The Sheplers business therefore is much more mature, and two, the bootbarn.com business is really benefiting from the addition of our Chief Digital Officer named Jon Kubo. The sheplers.com business is still under the stewardship of executive named Mark Hampton who is continuing to do a terrific job but he's been running that business for a while. So I can't really help you prove out your hypothesis, but I wouldn’t say that people become less promotional based on that. I think it's more of the context of our two businesses.

Our next question comes from the line of Jonathan Goff of Robert Baird. Please proceed with your question.

I wanted to ask Jim first on the consolidated comps another question. I mean it looks fairly obvious that there was some unique factors in the third quarter with weather and the promotional overlap for Sheplers and I know it's only five weeks that you're seeing better trends, but as you look at the business in kind of the tailwind of the week-to-week trends. What's your level of comfort that you're seeing overall stabilization and that you're not just seeing kind of a positive blip on the road to more negative trends ahead?

I would say it's modest at that. I mean it's -- and we specifically have chosen words like visibility is tough not to frighten people, but to sort of lay out what we are seeing. And when we look at year-over-year comparisons on the Sheplers business, they were extremely high low promotional last year. It was -- they're more promotional in the third quarter in general than they were in the fourth quarter and the next quarter for us the first quarter, but there still are periods of time when we're going up again extraordinarily promotional events for them in the prior year. In total, still less in the third quarter but when we lap against those we'll see how business performs, so I'd say our comfort level is modest. I wouldn’t declare victory nor would I say the sky is falling. I guess we're cautiously optimistic.

And to that point on the forward-looking comparisons obviously we don’t have access to those comparisons for Sheplers given that it wasn’t consolidated back then, but is there anything to be aware over the next few months or quarters in terms of the comparison prior to when you have the business last year?

So, I'm guiding to the specifics of their promotions for a second. They've two types of promotions in their prior year period. One is a percent of a single item and one is a percent of the entire purchase. In the third quarter, they ran 20% or 25% or 30% off entire purchase for the most of that quarter. As we look at the first quarter and the second quarter going forward, their promotion while still much more promotional than Boot Barn, the promotion that we're running up against or cycling is a percent of a single item purchase, so that might be 25% of a single item. We do however have maybe in total three weeks or four weeks where we're up again entire purchase promotions over the next three or four months and it's unclear to us what that will look like as we cycle those, but it isn't every month -- sorry, it isn't every single week like it was for the third quarter which actually just accelerated into December where they had events that was 30 off an entire purchase. So I hate to get so tactical, but that's where we're looking ahead to. I can tell you that once we get to the point where we cycle our own marketing which will come a little bit after the anniversary of the acquisition we will be up against ourselves and it'll be much more predictable.

And our interest repairs but just as a follow-up, does that -- is it a fair assumption then that as you look at the fourth quarter guidance for the comps to flat to slightly positive, does that maybe assume more modest trends than what you've seen the last five weeks or any kind of flat line the recent run-rate going forward?

There is two things, one is the dynamics that I mentioned at Sheplers. The second though is in this particular quarter Texas is a bigger portion of our business and while we are pleased that our business has gotten sequentially better, it's still negative and it's a bigger bit, not enormously bigger, but it's a bigger portion of our business in the fourth quarter than it is throughout the rest of the year by virtue of the fact that there are four consecutive rodeos in a row and I think most of the callers understand a rodeo for us is to 7 days to 21 days long, this is not a one Saturday afternoon event. So as Texas becomes a bigger portion of the business for the quarter, it's our -- what we're trying to manage against is we will get composition of our or comp down.

And then if I could just two quick ones for Greg. Greg, first just on the leverage following up but I know you said the 3.3 probably will be the low water mark just given that the seasonality of the cash flows, maybe asked different way as you look out, so I know you had a kind of a peak level of 3.9 at the end of September last year, do you think you will stay kind of at or below that level and then maybe a step further at this time next year do you suspect they will lower than 3.3?

Yes, again we haven't provided 2017 guidance but yes I would expect that we would continue to see improvement in that rate or performance around that rate. So, we're saying 3.8 for Q4 and I wouldn't expect it to be materially different from that in Q1, Q2 we start to build inventories a bit. So, there could be some working capital need in Q2 but from now we would expect to see a lower ratio than Q3, correct.

Okay and then last one from me, understanding you are not ready give your detailed guidance for 2017 but may be just to frame my question, if I look at least at the consensus expectations that are out there, there is certainly some earnings growth for 2017 on pretty modest comp store sales growth less than 1% positive is that in the algorithm, I know you have the accretion from Sheplers and a few other moving parts, is that a algorithm that you think, kind of looks okay at this point or do you think there is some significant flaws with that line of thinking?

The answer is yes I don't think we can comment on that given, we haven't talked about 2017 guidance.

Our next question comes from the line of Mitch Kummetz of B. Riley. Please proceed with your question.

Just to drill down a little bit on the macro impact, I'm encouraged to hear that Texas is improving slightly sequentially but I'm still ain’t clear as to whether or not you're actually seeing sequential improvements for 3Q to 4Q, in aggregate across these four states, I don't know, if you can help me on that?

We've seen a slight improvement in aggregate across those four states but that's mostly driven by Texas.

Okay. Thank you. And then North Dakota, I know, it's not a huge market for you guys but Jimmy you talked about pretty significant downward pressure there, is there anything you guys can do about that, I mean is there any way or would you want to consider closing any stores based on that pressure, and how exposed that market is to fracing, I don't know if you have any perspective on what you think fracing is going from here but is there anything that could be done in that market in particular?

Most of the stores in fact, diversely every single store in the chain that is only from a comp base still contributes from a four wall contribution standpoint. So, we're not going to close stores that are making money to help manufacture a better comp. Having said that, if there is a store, and if there is not that many opportunities for this amount of space, if there is a store or two stores in a market and one is closed for lease exploration we might try to negotiate out of one I suppose if we believe we can transfer the business over to another store, but we looked at for some of those opportunities in a few times that they have presented themselves, we've done it but that's not something that we've been doing in the near-term.

And then the comp guys on Q4, you guys are seeing flat up slightly and obviously when you look at the business for the last few quarters, you have seen some sequential decline in comps quarter-to-quarter on last three quarters. So, I mean essentially you're saying that you're expect that to turn a bit in Q4 and you have got five quarters worth of data to look at, but I'm trying to understand how confident are you in that flat to up slightly, I mean it sounds like your visibility is pretty limited, you touched about being cautiously optimistic, but is there anything that you're doing in the business over the next couple of months that really gives you confidence that you can put up those numbers, even as the business has been challenged sequentially the last few quarters?

I'll go back to the answer from a prior question that is I think we have a modest level of confidence, and it is -- we feel good about the progress that we've made thus far into the quarter, there is a lot of sales left to be had in the fourth quarter and more of that is Texas as a percentage and as we said visibility is hard, so I'd say our level of confidence is somewhat in the middle.

Okay, fair enough. The last question, just in terms of the Q4 comp again, anywhere you kind of break it out stores versus e-comm I know in the past when you're speaking to Sheplers give a breakout between stores and comp there but is there anything, anymore color you can give on the fourth quarter comp either by concept or by channel?

Overall, I'd say that we're pleased with each of the components of the business but we do look at the business on a consolidated manner now, particularly given that we've integrated the Sheplers business in. We've got very much the omni-channel capabilities between stores and e-commerce at Boot Barn, we've actually been thinking about how we segment customers between sheplers.com and bootbarn.com. So it's becoming less meaningful for us to split out the businesses into the components.

Our next question comes from the line of Paul Lejuez of Citigroup. Please proceed with your question.

Can we just piggy back up a second can you remind us when you first started to see the pressure some of those oil markets, which state really led that pressure? And I just want to make sure I was clear, in this third quarter was there more of a drag or less of the drag from those states than last quarter, I know you said you're seeing slight improvement in aggregate led by Texas in the fourth quarter, but how much is the third quarter versus the second? And I guess part of my question, and I am just wondering if Texas was the first one that kind of led the decline and you're starting to see that get less negative, does it say something about potentially finally bottoming out in terms of those markets?

It's a terrific question. I wish I could agree with the hypothesis. The first state however was North Dakota and it was the fracing, drilling up in the Bakken formation that we started with Texas. And if we look at Texas that was actually probably the last state sequentially it was above company average then positive, but below company average, then the second quarter is roughly flat, and then the third quarter was down. So the third quarter was the first time that the Texas business was down, so I don't think we can call that this is the bottom unfortunately. And I think the dynamic at play is two different things. One is the, as oil price began to fall, there was very much of time lag before it started to impact our business, right. Oil, I think began to fall November of the prior year of ’14 and for our fourth quarter last year we're plus seven, and for our fourth quarter where it was seven and for our first quarter is was by six thereabout. So we had a lag of when oil prices fell and then layout that started to occur that's first dynamic that we have to understand. And I think the second is and we've unfortunately had to become some more knowledgeable, but we're hardly experts on how to drill the oil but it's more expensive to drill for oil in fracing environment than in a convention drilling environment. So as oil started to fall, the fracing company became unprofitable prior to the conventional oil companies turning unprofitable which is why we think that the fracing market got hit first.

Got you, helpful, thank you. And then just remind me the third quarter versus the second quarter much, I am not sure which is the answer there, but was there more of a drag in 3Q versus 2Q were in line?

No, so the second quarter Texas was a little bit better than flat and the third quarter Texas was down, I don't think we've provided a specific number but that was pretty solidly down.

And in aggregate those the markets that you refer to?

Yes, I know the aggregate number is as permitted to memory but they're heavily influenced by Texas.

Got you, and then a lot of the Sheplers business you talk about kind of improving that business at the store level and kind of instituting best practices there, is there anything that you’ve picked up from the Sheplers business either in supply chain or their markdown model or cadence, anything that that you're learning from them that you can incorporate or have incorporated into the core Boot Barn business?

So, on the digital side certainly there is a number of things, right, we're sharing best practices in terms of how to maximize SEO, search engine optimization for the Boot Barn site based on what the Sheplers team has been able to achieve. We've been consolidating how we purchase our pay per click advertising online between the two channels, sorry between the brands online. So Sheplers has had a heavier hand in how we market in the digital environment. From a merchandizing perspective, one of the things that Sheplers is very strong with was exotic boots, so we're trying to understand what we can with our exotic boot program at mostly men's western boots. And should we pull those into a shop environment in certain key markets or high-end stores to really merchandize those and shine a light on them which is something that was similar to what Sheplers had done in the past. That is something that we're compensating doing that would be a lesson learned from them. So I think -- and there's lot of things going the other way of course, so when I look at the organization and how we're working as a team, I'm extraordinarily pleased as to how the integration has gone and how the whole company has come together to fight off a very strong headwind across the business and that includes the guys in the Frisco office, the guys in the Wichita office and the folks in Irvine office. So hopefully that answers your question.

And then just last on the buying side, are you seeing any benefit just from increased size there's a little more buying power now that you've got Sheplers, are you already seeing that flow through in merchandize market line?

Well, I'll separate your question into two pieces, so yes, we are seeing some benefits. Of course we always hope and expect that they could be bigger. The second piece though and I don’t mean to be coy is as it takes a while for a better discount to flow through our merchandize margin simply by the way we account for our inventory on an average cost basis and we have to turn our inventory about twice a year, we turn inventory to about twice a year and we have to get through two-turns before we fully capture the discount, so yes, but there is a bit of a time lag before we see the economies of purchasing flow through the P&L.

Our next question comes from the line of Corinna Freedman of BB&T. Please proceed with your question.

A bit of a random question, I think the last time oil was about this level was late 2008, early 2009. Understanding that Boot Barn was under a different management and private, did you do any research of digging into what the comp downside could be that is -- our historical has only started 2010, but is there any -- which has been at that point turned positive, but is there anything any color you can give us on what -- how the business performed during that downturn in oil in Texas specifically? Thank you.

Sure, no, it's a good question Corinna. I honestly can't remember the specific numbers, if the business did comp negatively in that period. There is two differences though that might be kind of valid. One is the whole economy was obviously down at that point in time, so the business was down.

Right.

The other though was at that point in time the company was only in California, Arizona and Nevada, so admittedly as we have grown across -- we had 68 stores then I think, don’t hold me to that specific number, but I think there was 60 something new stores in three states, now we're 200 stores in 29 states actually less than 60 stores at that point and any regard we're a much bigger company, we've much more exposure to oil and other commodities just by virtue of the fact that we're in the Dakotas, we're in Colorado, Wyoming, Texas et cetera.

And then if you can break out the inventory for the core Boot Barn business and what that was up year-over-year, understanding that you guys don’t really own that much inventory like a distribution center I think but curious?

So, on an average store basis our inventory was flat on a year-over-year basis. The main drivers were the addition of the Sheplers business that was roughly 22% of the increase and then we added 22 new stores and that's 13% of the increase and then finally with the addition of the Sheplers distribution center it supports their e-commerce business that was 6% of the increase, so clear Boot Barn on an average store basis the stores were flat for last year.

Our next question comes from the line of Tom Nikic of Wells Fargo. Please proceed with your question.

I was just wondering about the puts and takes in the gross margin. You said that that 70 basis points of occupancy leverage, but I would assume that for the core Boot Barn business you had a significant amount of deleverage given the comp, would you be able to quantify I mean what sort of occupancy lift you got from the Sheplers mix or what the core Boot Barn business occupancy is? Thanks.

At the occupancy level, we don’t look at the business that way, we look at it on a combined basis and we attributed most of that 70 basis points of leverage to the Sheplers addition, but we don’t break that apart. We do look at merchandize margin between the two brands and the different channels because that's a good read of profitability of those businesses, but beyond that we look at the consolidated companies both from occupancy and SG&A.

Thanks, as I look to next year I know that you haven’t provided guidance but, so the liquidation type of sale that you did at Sheplers to cover the few old sale merchandize you stripped that out of the adjusted gross profit right, so you shouldn't think that there is a very easy compare until that gets lapsed just kind of apples-to-apples going forward?

So the rate we adjust the merchandize margin for that NGF as we move normalize it at what Sheplers merchandize margin for that product, the previous 12 months so that the expense that Sheplers had a lower merchandize margin rate than Boot Barn, we'll expect to see some improvement because we are only normalizing it to the Sheplers rate, but there won't be a big pickup on a year-over-year basis as you cycle those what I will call NGF clearance events because we have normalized that in our adjusted results.

And then just one last weird model thing, I noticed that share count went down from Q2 to Q3 and it is guided to go down again in Q4 why would that be happening?

Yes, this is Jim, that's really a function of the share prices, the share price goes lower, the options that are outstanding becoming anti-dilutive which then makes the average share come down.

Got it thanks, all right thanks guys.

Just for clarity the attribution there is that Jim wants them.

There are no more questions in the audio portion of the conference. I would now like to turn the conference back to Mr. Conroy for closing comments.

Well, thank you everyone for joining the call today and we look forward to speaking with you on our fourth quarter earnings call in May. Take care.

This concludes today's conference. Thank you for your participation. You may disconnect your lines at this time.