Greetings and welcome to the Boot Barn Holding’s Second Quarter FY17 Earnings Call. As a reminder this conference is being recorded. I would now like to turn the conference over to your host Jim Watkins, Vice President Investor Relations and External Reporting for Boot Barn. Thank you Mr. Watkins you may begin.

Thank you. Good afternoon everyone, thank you for joining us today to discuss Boot Barn’s second quarter fiscal 2017 earnings results. With me on today’s call are James Conroy, President and Chief Executive Officer; and Greg Hackman, Chief Financial Officer. A copy of today’s press release is available on 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 in the Investor Relations section of the company's website. 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 expectation, 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 on this conference call and webcast, we refer you to the disclaimer regarding forward-looking statements that is included in our second quarter fiscal 2017 earnings release, as well as our fillings 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. Please note that we have not presented adjusted measures for the second quarter or the first six months of fiscal 2017 as there were no adjustments. I'll 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. I am pleased with our results for the quarter, which reflect the strengths of the Boot Barn brand, as well as the strategies we put in place to manage through the current cycle. We grew net sales by 3.3%, increased same-store sales 1.8% and achieved $0.02 of earnings per diluted share, while maintaining our full price selling philosophy. Top-line growth was driven by the sales contribution of the 13 new Boot Barn stores opened over the past 12 months and strong e-commerce growth at both Boot Barn and Sheplers. Sales growth was partially offset by the planned closure of eight stores over the past 15 months including six low volume Sheplers stores that were closed consistent with our original expectation. On a consolidated basis, we have experienced sequential improvement in same-store sales in each of the last three quarters, driven by improvement in our stores business. From a merchandising perspective, boots have been the primary driven of this improvement and same-store sales growth with particular strength in work boots and men’s western boots. For the quarter, the same-store sales on our brick and motor stores declined low single-digits with the legacy Boot Barn stores outperforming the rebranded Sheplers stores. The sequential improvement in the stores was broad based across all major categories. We continue to see strong sales in many of our markets particularly in the West. While we continue to face sales headwinds in Colorado, Wyoming and North Dakota associated with the softness of local economies dependent on oil and other commodities. We are encouraged as same-store sales in the 30 stores across these three states improved sequentially from negative teens in the first quarter to high single-digit decline in this quarter. Same-store sales in our Texas stores…

Thank you, Jim good afternoon, everyone. I will begin by reviewing our second quarter results and then comment on our outlook for fiscal 2017. In my discussion I will be commenting on both actual and adjusted results excluding one-time costs to facilitate comparability. Please reference today's press release for all definitions and for a reconciliations of GAAP numbers to these non-GAAP adjusted numbers. In the second quarter, net sales increased 3.3% to $134 million. As Jim mentioned, this was driven by the 13 new Boon Barn stores opened over the past 12 months and same store sales growth of 1.8%. This growth was partially offset by the closure of eight stores during the last 15 months including six low volume Sheplers stores. Gross profit increased 1.6% to $36.4 million or 27.2% of net sales, compared to gross profit of $35.9 million or 27.7% of net sales in the prior year period. Adjusted gross profit was $38.4 million or 29.6% of net sales in the prior year period. The 240 basis point decline in adjusted gross profit rate when compared to the prior year was primarily the result of a 160 basis point increase in occupancy and buying costs. 130 basis points of this increase is the deleveraging effect of increases in store occupancy cost associated with the 13 new stores opened during the last 12 months. The remaining 30 basis points was incremental depreciation related to the capital investment we made in the rebranded Sheplers stores that was not incurred in the prior year period. We did not experience a full quarter of depreciation expense for these remodeled stores until the fourth quarter of last year. As a result we also expect this depreciation expense to be a 10 basis point headwind for the third quarter. The 80 basis point…

When I on the second quarter, I want to recognize the entire team and the results we were able to achieve. We fought hard to achieve a positive 1.8% same store sales growth and we're able to offset the drag of the oil and commodity pressures in Texas, Colorado, Wyoming and North Dakota. We did this while at the same time eliminating an entire direct mail campaign in the month of September and managing our average store inventory to be flat to last year. And finally we demonstrated a strong cost conscious culture across the organization as evidenced by the improvement in operating expenses. Given the macro retail environment coupled with the outsized pressure we feel in oil and commodity market, I'm pleased with the outcome and I would like to thank the entire Boot Barn and Sheplers team for delivering the second quarter result we just summarized for you all. Now I would like to open up the call to take your questions. Mike?

[Operator Instructions] Your first question is from Peter Keith from Piper Jaffray.

Hi, good afternoon everyone, thanks for taking the call. I was curious on the couple of dynamics that's been called up by other retailers, one would be the dynamic of whether and at least in certain parts of the country we've had a fairly warm fall this year. Curious if that’s shown up as an impact in your business thus far. And then secondly, any thoughts around what's been characterized as weakness in the agricultural economies now maybe have less exposure there, but curious if you're seeing any developing trends within that segment?

Sure, on the weather piece I always think that's hard to specifically isolate as an impact therefore we didn't call it out. I do think that it had been a warmer fall and probably did create a bit of a headwind for us by it was very hard to estimate the impact of it. In terms of your question on agriculture, we are impacted by that in some states and some of that is embedded in the three states of Colorado, Wyoming and North Dakota. So while it's often abbreviated as oil and gas, we choose the word oil and commodity prices very specifically in many of those markets including some of the markets in North Dakota. It's pressure on some of the specific agricultural commodities corn, canola, soya that are creating some of the headwind pressure in the Eastern part of the state anyway. Having said that we were able to find some growth in other areas and changed a few things from a merchandising and marketing standpoint that helped us find some same store sales growth.

Okay, thanks Jim that's helpful. And then maybe just on gross margin, it would be a better question for Greg. You had mentioned the three headwinds to gross margin or merchandized margin when would we expect those to abate? And does the guidance imply fairly healthy gross margin gains by fiscal Q4?

Yeah so the first dynamic which is the shrink dynamic that we’ve seen in Q1 we'll also see that in Q3 and then that should actually reverse for us a bit in Q4. Obviously we have to see the result for the fiscal inventory count to see what that impact is in Q4. But presuming it’s flat the same rate year-over-year, we’ll see a pickup in Q4 because we won’t have that charge that we incurred all at one-time in Q4 last year. In terms of the aged inventory, as I said in my prepared remarks, we’ve got a pretty healthy inventory of freshness less than 8% of our inventory is aged, so I don’t expect that we’ll see this recurring charge. And then the third factor is the rewards warrants expense and the one piece was that last year in the second quarter the stores were branded to Sheplers as we weren’t giving customers that shop in the stores Boot Barn reward points. But that does start in after post rebrand and most of those rebrands happened or did happen by mid-November. So there is a slight piece of Q3 this year that will have the same phenomena that we saw in Q2, but I don’t think that’s a material items. And then the second piece in terms of how we have been marketing to our most loyal customers. We were pleased with the results we got out of that in terms of the customers appreciating us making them aware of their rewards points of using those. So that might continue, but frankly we haven’t -- we don’t have anything planned at this point. And then in terms of healthier merchandize margins in Q4, I mean we have got a pretty consistent promotional calendar both in Q3 and Q4. And so I don’t expect to see any step function changes either way in our merchandise margin, we have the initiatives to improve margin that I talked about briefly in terms of private brand and container purchases. But we expect Q3 to be roughly flat and again we’ll start to see some improvement in late I think Q4 something to the physical inventory.

Your next question is from Matthew Boss, from JP Morgan.

Hi this is Steven [indiscernible] for Matt today. Thanks for taking our questions. So just following up on that last question, if we’re thinking about merchandize margins being flat in the third quarter and then growing in the fourth quarter, how should we think about the buying an occupancy line, just trying to think about overall gross margin performance in the second half?

Yeah as we’ve said before on calls, we need somewhere between a 3% and a 4% same store sales growth to have flat occupancy cost year-over-year. And to the extent that we’ll be comping below that we’ll have some deleverage effect on the occupancy volume.

Okay, very helpful. And then the cost controls are very impressive in Q2 to drive SG&A leverage, do you expect to see continued leverage in the second half of the year on the SG&A line?

What we expect -- I mean in Q3 specifically we expect to be flattish and in Q4 we will see a slight benefit because of the 53rd week. We should be able to leverage some of the fixed cost that occur in March with an extra week if you will. So that’s the way to think about it.

So that’s all my questions. Thanks very much.

Thank you.

Your next question is from Randy Konik from Jefferies.

Hi, thanks guys. First I want to ask about the e-commerce division. So you said it’s 17% of total sales I believe, is there any color you can give us between how activities are between the penetration of e-com of bootbarn.com to its divisional sales versus sheplers.com to its divisional sales? And any kind of color you can give around like the margin differentials between the two sites and SKU overlap. And because what I am trying to get towards is, how do you think about you have a long-term vision of total e-com penetration, margin profile between the two sites SKU productivity, et cetera I am just trying to get a sense of how you’re thinking about that a little longer term the next quarter? Thanks.

Sure. I’ll just start at the highest level. We have two brands online as you pointed out sheplers.com and bootbarn.com. We expect that those two brands will continue from a strategic perspective, the bootbran.com online brand is truly an extension of the store, it’s our omni-channel brand. We are connecting it more and more with the store level experience. And the Sheplers brand is more of the mega stage and really gives us an ability to go head-to-head with price competitors including some of the biggest sites in our industry and outside our industry. So from a strategic perspective they take on two very different roles for us. In terms of their relative size, the Sheplers site is three -- a little more than three times bigger than the Boot Barn site. So it definitely does more volume. Having said that the expertise that runs the sheplers.com piece of the business is continuing to lead over to the bootbarn.com piece. In fact the same person now runs both businesses, which is already starting to pay some dividends from the bootbarn.com part of the business. In terms of margin rates of the two businesses, without walking everybody through very detailed P&L of the two, bootbarn.com's prices tend to be a little bit higher than sheplers.com, so we get a higher merchandised margin rate. And when you take the e-commerce division as a whole and compare it to the stores business as a whole the operating margin is slightly less than the stores business, but it's one that we’re starting to make some inroads on closing that gap. So we want to get to the period where we're indifferent between -- we're indifferent from a financial perspective between a in-store sale and an e-commerce sale. So we've made some progress there and we'll continue work on it until we get to that point. In terms of -- your last question was breadth of assortment. Right now the Sheplers assortment is also broader than the Boot Barn assortment. Overtime, when we integrate the backend and using that term backend very generically that will ultimately include the inventory and the warehouse. The assortment breadth and depth will be identical between the two brands. Albeit pricing may continue to vary across the two brands. Hopefully that helps to give you some more color in terms of how we're going to market with the e-commerce channel.

Yeah, it's very helpful. So I guess my next question would be you talked about quarter-to-date trends are slightly positive, you did mentioned a sentence that talked about important events that had timing shifts. Just curious how impactful those might have been to the -- from a native standpoint. And then you talked about the rebranding remember our branding took place in October and November of last year. So I guess what I'm trying to get -- would be helpful for everyone is how do you think the story plays out as we lap that effort not just October and November, but past. What should we be seeing in the marketplace as we’re monitoring the store from a merchandized margin perspective, sales perspective, et cetera? Thanks.

Sure on the first part of your question the timing shift, there is three or four things that I could call out all in aggregate the way I would help guide the investor is as we look at our business in October and we compare it to the most recent quarter I think it’s virtually in line if we were to normalize it for some of the shifts. Two of the shifts that I call out just to give you some specifics, there is a PBR world final every year in Las Vegas. It's two weeks later this year versus last year, so we've already cycled the sales that that would generate in the Las Vegas market last year and that's upcoming for us this year. The PBR starts on November 2nd this year, so it's next Wednesday. The second thing we've done is we and kind of relate to that in Las Vegas, we had historically before we had put our new store in the Las Vegas market at this time point in time we would put a tent outside one of our stores kind of a permanent tent if you will. And it would be up for 2.5 months or so. And it would sell through a lot of kind of either clearance products or products that we brought in close out to sell through in that tent during this time period. Given the fact that we now have as a brand new flagship store in the Vegas market and we’ve split our work in western stores in two different stores in the market we decided to not do the tent and while that will erode our same store sales a little bit from a margin dollars perspective, it’s proving to be a good decision. And then the third thing that I would say that was kind of year-over-year comparison was when we cycled the first set of Sheplers stores that got rebranded last year, they had a nice pickup when they were rebranded during the grand opening and now that is behind us. For the next two phases the inquiries that they experienced during their grand opening was more muted, so I don’t expect it to be a big deal for the next couple of phases. But again the headline there is I think the business in October was very much in line with the business that we just reported for the second quarter.

Yeah that’s super helpful. My last question I don’t know whether others want to ask. The first couple of questions asked about more I feel like near-term gross margin puts and takes or what you have. I guess my question is just you feel good about the long -- kind of from an IPO perspective the long-term gross margin kind of opportunity with private label, et cetera. Like i.e. is there any change to the long-term gross margin profile for the business in your view?

Right. So it’s a great question. No there is no change in the long-term outlook of merchandise margin expansion going forward. We continue to fill our private brands businesses we’ll be launching -- likely launching a new brand over the next 6 or 12 months that we just started early days working on. We’re also taking our current private brand and introducing them into sheplers.com for the Christmas or holiday season and that’s if we can get traction on that part of the business that will be another call it if e-com is in total 17% that will be another 13% of our business if we add Sheplers, if we add private brands to Sheplers where we are getting margin enhancement on the private brand piece. So that’s another area where we should be able to improve merchandise margin. And I’d say the last piece of it is we’ve had some little nice traction in direct importing full container loads of vendors products and when we take over the container and imported ourselves we get expanded merchandise margin and that merchandise margin is or the differential in that merchandise margin is big enough to improve our rate even after the additional SG&A costs that has to go into the distribution center and other things to break it down. So I think all of those things will help us continue to build some expansion in merchandise margin rate going forward.

Very thorough and very helpful. Thank you.

No problem, thank you.

The next question is from Mitch Kummetz from B. Riley.

Yeah, thanks for taking my questions. Let me start Jim you made some comments around oil and gas as always in Texas you mentioned that it was negative single-digits sort in line with last quarter. I am just kind of curious to try to understand some of the comparison, was Texas a similar compare, was it an easier compare and when you think about kind of these four states in total just remind us when you’re lapping the easiest comparisons in those markets?

So on the first part, so yeah, just starting with the -- so it called out in the script and I’ll get back to the second part of the comparisons to last year. What we said was Texas in the second quarter was very much in line with the first quarter. The other three states that we tend to group together Colorado, North Dakota and Wyoming have improved. So -- and then when we think about the year-over-year comparison, which was the second part of your question, the three -- the worst is yet to come for the three states in the year-over-year comparison. And I guess frankly that worse is yet to come in year-over-year comparison for Texas. So to some degree I don’t want everybody to read too much into that but that’s the data we’re tallying.

So when you say the worse is yet to come, can you give us a sense as to when that worse is coming?

The closest easiest compare we have just in the commodity space unless just group them all four together particular fact is the third quarter.

Okay. Got it, thank you. And then Greg, on the SG&A for Q3 you did -- you mentioned some benefits from some legal and contract settlements, can you just be a little bit specific as to what the benefit was on the margin in the quarter from that?

Well, I characterized it as saying it was a smaller piece of the overall savings in SG&A we wanted to call it out because its one time in nature, but it’s not material to I’ll say the rates and the guidance as kind of laid out in terms of how Q3 will look takes into account that going away.

Got it. And then Jimmy you mentioned it on the quarter the work comp I think work both apparel and footwear was positive and I think this is the third quarter in a row that you’ve seen and I think last quarter you talked about some challenges on the discretionary side, can you maybe address that a little bit? And I have one last one.

Sure, so it’s a work which continues to be a nice driver of sales, part of that is the Sheplers stores have really introduced work boots since we rebranded, so that’s been a nice piece of our growth. In terms of the work apparel, work apparel is a little bit more complicated, it’s very strong in the Sheplers stores and actually it was less strong in Boot Barn stores. Having said that I think that’s almost entirely due to the change in the mailer because when we did our October mailer that had work, the work apparel business turned immediately positive in the Boot Barn stores. The other thing that we’ve seen that is I think underlying good news from an apparel perspective and this is now just looking at Boot Barn kind of the core Boot Barn business is we’ve seen the men’s and ladies western apparel businesses improve. On a consolidated basis mostly because of the Sheplers stores or rebranded stores that are dragging them down, but if we were to exclude the branded stores and the impact of the promotional coupons in LY [ph]. We’ve seen some nice traction and a lot of credit goes to the merchants who have really worked hard to evolve those assortments. In terms of discretionary purchases versus sort of necessary purchases if exotic skin the boots is the dull whether for luxury or discretionary purchases that business is still pretty tough. So, the anecdote of the guy working in the oilfield buying his work boots and his work apparel and also buying a pair of $400 or $500 exotic skin boots that guy and that business is still under pressure, but we have been able to offset it with some other areas.

Got it. The last question I had was some of your vendors as they have gone through this earnings season have talked about kind of an abundance of off price inventory, I don’t know to what extent you’re seeing there in terms of competing against that obviously you guys have more of a full price stand, so I don’t know if that’s having any impact.

Yeah it’s least competitor if I am honest right, it’s somebody who is selling boots and devaluing the category regardless of whether it’s full price items or not, we see that in stores because a lot of the pressures that we have been facing that fortune have been able to kind of fight through have really impacted many of the local mom and pop competitors out there and we’ve seen those guys in many market doing other business and liquidating inventory. And we’ve also seen some pressure online from a couple of pure play Western boot retailers and that's another area where that price erosion and that battle for market share is frustrating, I think on the short-term. In the long term it gives us more standing as the leader in the industry. We continue to build market share and we will continue to have less competitors going forward of any vulnerable nature.

Got it, right thanks guys.

Thank you, Mitch.

The next question is from Paul Leswe from Citi.

Hey, it's Tracy filling in for Paul, I have two questions. The first is you guys mentioned you had a sequential improvement in almost all product categories and I think you even just said men’s and women’s apparel got better. So I was wondering which product categories did not get better? And then I have a follow-up, thanks.

Yeah, I think the only notable call out would be work apparel. And again I think that's kind of a fuller because I think it's the shift -- I'll just tell you specifically what we did last September and it had been a perennial promotion where we did a "work mailer." We sent more than half a million direct mail picture mini catalogs out last September that featured car Carhartt, RIGGS and our other work apparel brands. We eliminate that catalog altogether we built in some of that merchandize into our October mailing and when we went from September to October the work business went from negative to positive. So again it's -- we want to make sure we are being intellectual and honestly in calling out it that in every single category side. But I think in the case of the work apparel business it was simply a shift of when we kind of went to market and promoted it with our catalog and with a radio support that almost always supports the catalog directly.

And your next question is from Benjamin Bray from Robert W. Baird.

Hi, thanks for taking our question. So I just wanted to ask was with comps stabilizing now how should we think about the unit outlook now and what do you need to see to potentially reaccelerate that next year?

Yeah, I think what we said is that we needed to get through Q3 or holiday to see, to take a better temperature check of the business. So I think we might talk about it in the next call. But we are not prepared to talk about that at this time.

Okay, thanks. And then also just wanted to ask about the financial leverage and some of the puts and takes when you do eventually make those decisions with the unit outlook. I just -- what's your comfort level for the current financial leverage and how would a increase in this unit outlook impact your cash flow?

So a new store on average costs us about $800,000 a mix of capital and inventory investment and what we said this year in terms of our guidance was that with 15 stores unit growth instead of 22 so it would save roughly $5 million or $6 million in cash by not building at a 10% unit growth. We also said that we -- our cash flow projection was between $13 million and $20 million. So we would still generate excess cash flow this year even if we built 10% unit growth. And in terms of our comfort level with the leverage rate below 4, going forward we are very comfortable with that.

All right, thanks very much.

Thank you.

[Operator Instructions] There are no further questions at this time. I will turn the call back over to the presenters.

Great, well thank you everyone for joining the call today. We look forward to speaking with you all on our third quarter earnings call after the New Year. Thank you.

This concludes today's conference call. You may now disconnect.