Greetings and welcome to the Boot Barn Holding's Third Quarter Fiscal Year 2017 Earnings Conference Call. As a reminder this conference is being recorded. Now I'd like to turn the conference over to your host Mr. Jim Watkins, Vice President, Investor Relations and External Reporting for Boot Barn. Mr. Watkins, you may begin.

Thank you, Chris. Good afternoon everyone, thank you for joining us today to discuss Boot Barn's third 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 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 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 third quarter's 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 third quarter 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'm pleased that we were able to generate our third consecutive quarter of positive same-store sales growth. As we look at the underlying fundamentals of the business, we feel good about the key drivers of our positive same-store sales trends over the last six months. Within the quarter same-store sales increased slightly in October, declined to a negative 5.2% in November and then grew 2.3% in December. We believe that November wasn't anomaly due to unseasonably warm weather in many of our core markets and the distraction of the presidential election. Fortunately sales rebounded in December and we have seen positive same-store sales growth continue into the first five weeks of our fiscal fourth quarter. We continue to face macro pressures in many of our core markets being impacted by the price of oil and other commodities. Having said that, we were still able to achieve a slightly positive same-store sales results for the quarter which further validates the benefit of our diversified business model and the strength of both the Boot Barn and Sheplers brand. While it is difficult in our industry to precisely measure the sales performance of other western and work retailers, we believe that we continue to take market share from many of our competitors in both the store and e-commerce channels. I am encouraged by the progress we've made executing our major strategic initiatives and by driving sales growth and increasing profitability. These growth strategies have remained intact over the past four years although we continue to evolve our approach and execution to adapt to a changing marketplace. For reference, the four growth strategies are as follows; number one, continue omni-channel leadership, two, drive same-store sales growth, three, build-out private brand portfolio, and four,…

Thank you, Jim. Good afternoon everyone. I will begin by reviewing our third 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 refer 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 2.9% to $199.4 million. As Jim mentioned, our sales performance benefited from the contribution of the new Boot Barn stores opened over the past 12 months partially offset by the closure of two stores. Gross profit decreased 1.3% to $63.4 million or 31.8% of net sales compared to gross profit of $64.2 million or 33.1% of net sales in the prior year period. Excluding the amortization of inventory fair value adjustment and acquisition-related integration costs, adjusted gross profit was $65 million or 33.5% of net sales in the prior year period. The 170 basis point decline in adjusted gross profit rate resulted from a 100 basis point decline in consolidated merchandise margin and 70 basis points of occupancy deleverage. The decline in merchandise margin rate resulted primarily from four factors. First, 30 basis points of the decline is the result of a shift in sales composition as we had a higher percentage of e-commerce sales compared to the prior year. Second, 30 basis points of the decline resulted from increased freight costs. The third factor related to a higher retention rate and our annual bounce back promotion which accounted for 20 basis points of the decline. Finally, the shrink accrual was higher consistent with the last two quarters. As Jim mentioned, we continue to expect to drive merchandise margin by increasing our private brand penetration. We also expect to see…

Thanks Greg. I’d like to open up the call to take your questions. Chris?

[Operator Instructions] And our first question comes from the line of Matthew Boss with JPMorgan. Please proceed with your question.

Thanks guys. So, can you just talk a little bit about the performance and the returns that you're seeing in your new stores and then just what metrics you are watching to consider square footage re-expansion next year and beyond?

Sure. Thanks Matt. The new stores are in line with our three year payback model that we've outlined in public and kind of been consistent to throughout a new store day is $1.7 million-ish on average and with the investment in both capital and inventory, we get about a three year payback. In terms of whether we're going to accelerate going into or next fiscal year, we certainly relate that out on our year end call for everybody. The earnings algorithm for Boot Barn has typically been 10% new unit growth per year and the year that were presently in - we are having fewer than 10% over the last few years prior to that we had exceeded that number pretty handily coupled with our provision on top of new store growth. So, I think we're true to the 10% number over a long period of time. I think it's a little premature to commit to a number for our fiscal 2018. Level we would need to see is, good stable business over a few quarters. We're starting to build back over the last couple of quarters. We'd like to get through the balance of Q4 and understand where we stand from a same store sales perspective and from a capital perspective and then we will make the call as to how many news stores for next year, as well as - while return on investment we can get for remodels. Does it answer your question?

Yes, no it does. Thank you. Just as a follow up, so if we pass through some of the regional noise, what’s the underlying core comp that you're seeing in some of the non oil and gas markets and just any change in foot traffic and just given your heightened e-commerce penetration now?

There are two different questions. On the core underlying comp, the model that we laid out when we went public was a low single digit underlying comp, and I think if we strip out some of the headwinds that we're facing and included the benefit of e-commerce, we would be certainly within the low single digit comp that we had - always had in our earnings algorithm. It is admittedly tempered from the plus 7 we are posting a couple of years ago but it's in line with the earnings algorithm if you will or model that we had outlined. In terms of the second part of your question given that e-commerce has been growing double digits and while on a consolidated basis we were positive, admittedly we were partly positive. Therefore the stores come negative for the third quarter, most of in fact all of the negative comp in the third quarter can be attributed to transactions as opposed to traffic, we don't have traffic counters that we can rely on just yet but our transactions were down, our basket was actually slightly up. So we would infer from that that it was a per traffic challenge that drove the stores business to a negative comp.

Great. Best of luck guys.

And our next question comes from the line of Peter Keith with Piper Jaffray. Please proceed.

Hi good afternoon. Thanks everyone. I was wondering around the gross margin mix headwinds with the strength of e-com, two questions on that is did you actually quantify the drag on your business and maybe why is that now popped up as a headwind when I don't recall seeing it in the past?

I'm not sure we understood the first part of your question. Can you try that again on us?

What was the gross margin negative impact from the shift of e-com sales?

Overall it's a 30 basis point hurt to merchandise margin.

Okay. And then - so why is that now, they don't recall that being called out of the past, seems like that's a meaningful headwind, why is that popped up now and how long should we expect that to remain in place keeping in mind that you are making some e-com investments?

Great. So I think it's more pronounced in the most recent quarters because we had such strong growth in e-commerce and frankly we had stronger growth in e-commerce than we had anticipated to date. The channel shifts is a little bit more accelerated in the most recent quarter than we had initially would have modeled ourselves. So that's the reason for calling it out and the reason the margin is lower is there is a couple of reasons we think specifically merchandise margin. The first is the online channel tends to be a little bit more price competitive, so our merchandise margin rate literally the price that we're selling in goods store tend to be a little bit lower online than it is in the stores. That's even more pronounced on Sheplers.com versus Boot Barn stores. The second piece is the shipping cost associated with the online purchase also erodes our gross margin and in today's world in order to be competitive online, we need to offer free shipping at minimum and in some cases free two days shipping which while not economic for us or probably for anybody it table stays in today's world.

Yes, that answers the question yes. So then I guess as you're consolidating down to a single PC obviously there should be some cost savings there over time. Is your goal then to make that e-commerce shift neutral or should we expect just over time that's going to be a constant headwind on gross margin?

Look a couple of response to that, it is a very good question. Firstly, we are agnostic to how the customer wants to shops. So, we want to be there in either channel to take care of consumer demand and what we will be working on is trying to get the e-commerce channel to be equally profitable to the stores channel for us. So a couple of things that we're looking at and are in the process of doing, when we talked about combining the two fulfillment centers right now bootbarn.com, has fulfilled in California and Sheplers.com has fulfilled out of Wichita in the next couple of three months where both be fulfilled out of the same place. So there is some natural economies of scale there. The second is we are - we always plan to invest in the online part of our business. Now I think we are moving more quickly and perhaps in a more augmented way to add more automation to the Wichita facility that should take the fixed cost down. The third piece is shipping particularly in bootbarn.com given the way the company set up, you could understand why bootbarn.com is someone we got - California but other than that it doesn’t make sense to have e-commerce fulfillment coming out of the Western part of the U.S. So as soon as we move the bootbarn.com fulfillment operation to be combined with the Sheplers.com fulfillment operation, we should be able to reduce the shipping cost per package for each customer that will continue to help improve the profitability. And I would say the last piece of it is kind of coming back to top line, our merchandise margin. Right now our online inventory turns much more quickly than our stores inventory and we think with a…

Okay, that’s great feedback. I appreciate it. And one last question unrelated. The former Sheplers stores now you fully lap the conversion process or analyzed it how are those performing in here to one of the Boot Barn banner.

Yes, Peter we looked at those stores and those stores performed in line with Boot Barn stores in similar market so, the Sheplers stores then Texas perform like other Boot Barn stores and Texas the stores in Denver performs similarly et cetera so, we were pleased to see that the Sheplers stores had improved to the Boot Barn level performance.

Okay, thank you very much guys. Appreciate it.

And our next question comes from the line of Jonathan Komp with Robert W. Baird. Please go ahead.

Yes, hi thanks. My first question just a couple of clarification to start but the unit growth for the year I think it was now 12 units for the year it is previously was 15 but I just wanted to confirm that and if that’s either a timing shift or something else going on.

Yes, Jon this is Greg and two stores that we though we’re going to open this fiscal year have slipped into fiscal '18 and then we had one store that we opened that we had targeted as a remodel - relocation, it's in Concorde, North Carolina and so we’d initially kind of that as a new stores that’s really a relocation as we closed a mall store in that same market that were the lease and expire that made more sense to move that store outside the mall.

Okay, got it. And then just clarifying the drag from freight on gross margin during the third quarter. Was that - I guess what drove that was that a mix issue or some other source of pressure.

Yes, I mean it was a mix issue we really saw at sheplers.com. Sheplers.com had outsized growth as we talked about and as part of that and Jim touched on it as well, we want to invest more inventory into that business, its driving faster and one of the cost associated with not owning that inventory and the distribution center is a little bit extra freight cost from the vendor to get up to the customer. And so it was partly due to the success of how strong Sheplers performed in the quarter.

Great, okay. And then turning to the guidance, I know you Greg you mentioned I think three or four factors contributing to the slight reduction for the year and I just wanted to may be ask if you can give more color on the degree of impact from each of those factors that you mentioned.

Right. So, if we thought about the previous range of 66 to 73 and now we're at 60 to 63 as basically $0.10 of reduction, $0.04 is missing the Q3 on the high end of our guidance range, we've guided 43 and we came in at 39. So we were below the high end. The second piece is really the headwinds and those oil and commodity states that continued to lag so, it's taking down our top line store sales as a result of that lag. And then finally its merchandize margin was seen a little bit of continued pressure as e-commerce penetrates a bit more in the business that was pretty pronounced in Q3 and Q4 seems to have continue that plan. And then we talked about and I believe at ICR that January is our normal clearance time of the year and we have for success with that event this year and so we had increase penetration of clearance which bought them margins in the month of January.

Okay. And then last one for me just wanted to may be to bigger picture question just on the policy standpoint and intact policy and trade. Obviously a lot of moving parts in uncertainties but I wanted to may be ask if you given any thought about some of the potential implications from what's been discussed out there and may be if you can help quantify some of the sourcing exposure in terms of country of origin for your products.

Sure. So starting big picture to your point I think in general just and secondary very complicated set of dynamics that plays here and we're following it extremely closely as I'm sure – that in general we believe that the new administration could be good for our core customer and we do service a blue taller U.S worker we certainly are closely connected to the oil business so to the extent that either there - can be improved based on new policies that could be helpful for a underlying business into the core customer. Having said that, I think some of the leasing news has the potential to create a little bit of uncertainty in the market and then we think about a kind of to your specific question around the economics of it and can we scale it for you, yes we think about the most obvious question for us is we do import most of our product that two country they import mostly from our China first and Mexico second. We do have some vendors that produce for us domestically and in fact I mean some of those are, some of our bigger vendors have domestic manufacturing but if we run to isolate the specific Mexico import care discussion, I would think about how exposure out of Mexico is most of our probably becomes from Mexico and call by about 10% of our imports of our product and then within the boots part of our business half of our sales are boots, a third of that portion is work boots and very little if any of that comes from Mexico. And that leaves western boots men's and ladies and I would say about half of the men's and ladies work boots are made in Mexico. So, if you…

Got it. Appreciate the perspective, thank you.

And our next question comes from the line of Paul Leswe from Citi. Please proceed with your question.

Thanks guys. Couple of questions. First you guys gave your comps by month, I'm just curious if you saw any change in ticket by month or was it all just fluctuations in traffic and was there any change in promotional cadence in December as you think about kind of November versus November last year and December versus December last year. And then second on the new store productivity, any differences that you are seeing in new stores they are opening in existing markets versus new markets just in terms of how they are performing relative to your expectations or hurdles? Thanks.

Okay. So on the first part, the composition of the comp by month was connected to the second piece of promotional cadence. The honest answer is right in front of me, I don’t have all that data having said that I think the driver of each week, each month and the quarter is traffic or the way we measure that is transactions. I don’t think the basket size, unit per transaction AUR were very widely between or even much at all between October, November and December. In terms of the year-over-year promotional cadence on the one hand we tweaked find a bunch of different things but I think when we look at it in totality there was virtually no change in promotional posture or level of promotional discounts or number of sales or campaigns, when we look back at the last six months of business leading up through the third quarter, November really stick out which is kind of why we called it out specifically and of course the Election was underway. And now it's distraction and for us and we tend to not use this as a reason typically for sales good or bad but for us in November specifically in some of our core markets it was looming before which we could literally quantify and we thought it was necessarily to call out, we also saw it specifically in the merchandise categories in November where outerwears and coats and some of the workwear car jackets products were struggling the most.

Got it.

Question on new versus existing stores?

Yes new versus existing markets, yes.

On balance we ramp up more quickly in new markets, having said that we are still - we're still pleased with entering to new markets we have been investing over, if you look at the last 36 months time, we have been investing in the Southeast, we've been investing in Texas and we've been investing in the Western part of the - Western region and in many cases in California. So the group of stores is performing well and we do however get a quicker ramp up in the California stores. So when we're looking to derisk new store growth, we will tend to come back to markets where we have a good saturation and frankly that’s one of things we're thinking about as we go forward to next year is another way to get a three year payback is to remodel a relatively high volume store just happen that many of the stores that are potential remodel candidates are also in our legacy markets which is California, Arizona etcetera. The store white space for us in core markets and there are certainly plenty of white space in the Southeast and then up to the mid-Atlantic states given everything going on in the country coupled with what's going on within our business while it's growing positively, we’d like to be on even more solid ground before we started expanding into brand new markets like climbing New York up through the Southeast and mid-Atlantic states of Maryland, Pennsylvania, Ohio, West Virginia et cetera, that may be a long answer but did that help give some color around your question?

Yes, absolutely just one, one more if I can any update you can give on the competitive landscape any changes that you’re seeing in terms of some of your major competitors opening stores, closing stores what you see number of some of the online guys anything that you can help us with there?

Sure, so it is hard to give a specific fact which is frustrating for us because we can’t get great data in the industry. We do of course interact very frequently with our vendors and what the vendors would say is we have lot of at the Mom and Pop guys that are struggling and many of those guys have didn’t have the financial wherewithal or perhaps the summit through kind of through a down environment particularly in the oil markets. So some of those guys probably gone away and I think the vendors would confirm that. So if you think about our number one competitor in a way is the group of 100s of Mom and Pop shops out there that have one store and I think those guys have had some difficulty and will probably be able to take some share going forward from that group. The second big bucket if we think about Brick and Mortar stores is Cavender’s specifically and Cavender’s is a pure play Western and work retailer based in Texas, very formidable competitor and a terrific operator from there. They are private, so we don’t know their specific plan. They have seen to have at minimum slowed their new store development pretty substantially. Now they were never at a 10% put their opening three or four stores a year and now they're probably in the, I’m guessing like in the one to two stores a year kind of mode. The third bucket from a Bricks and Mortar perspective would be we have a little bit of indirect competition with the category of stores called Farm & Fleet those guys are probably a little bit more healthy and building some more stores, we compete against them with the breadth of assortment they tend to have…

That's great. Thank you, good luck guys.

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

I guess what I wanted to ask is or just to clarify when you kind of analyze the oil commodity states stores the discrepancy in the comp versus the non-oil commodity states, is [indiscernible] or transaction count related or is there anything else as it relates to maybe UPTs or AUR that is kind of sticking out between those stores and the non-oil commodity states stores?

Yes Randy it's Greg and it's really part of our transactions I mean I would say primarily the vast majority of the issues is a traffic issue or transaction issue.

Got it. Okay and then I guess my next question is within those oil commodity states stores are there any types of learnings from the workwear business that is really differential, is the workwear business in oil – workwear and work shoe business in oil commodity state stores remarkably different from a penetration and performance standpoint than in the non-oil commodity state stores?

Yes I mean FR is really or flame resistant clothing obviously is very heavily penetrated in those oil markets, Jim you probably have...

Yes you are totally right, we certainly saw more robust as Western in those markets. Work boots in the biggest boot category in this market and I think on balance we saw more power than overall boots because we see as many ladies boots in some of those markets. And what we've done to try to control our destiny there a little bit is when the typical worker wind up having to find a different job is no longer needed FR, no longer necessarily needed field boots, so we find and tweak the assortment, brought down the price points for our workwear products with the couple of new brands and shifted the assortment a little bit so wasn’t all our safety wear and I think that helps us keep the customer and maintain some sales it probably did erode our assortment did erode our AUR and therefore our basket size. So that was - that is probably a portion of it but I still agree with Greg that majority of it would just be pure transaction less profit.

Understand. And then as we approach this idea of lag duration when oil collapse remember there was that lag we are talking through over a couple of quarters where if the store would be, we’re not seeing it in stores yet and finally hit you, how do you think about the duration coming, the lag duration coming the other way as, oil has now started to see last year point on the call, rig counts are started modestly go back up, what you’re thinking about in terms of train access or predict lag duration this time around going back up as it was going back down and are there any type of things that you’re particularly looking forward their within the business or within the macro economy kind give you some perspective on getting close towards that inflation point in those oil commodity space.

So, it’s a great question. On the downside of oil, I think the price of oil started to fall in November 2014 and we really feel any significant pressure until we got July probably eight or night months later and may be even August and so that was the lag on the downside now we’re trying to become acknowledgeable about this as we can of course if we can be agile I might be able to ride it back up if oil in the industry gets healthier. I think that might happen, if the lag might be a little bit shorter I think on the downside companies were slow to reduce their workforce wanted to hold on to like in many cases is pretty skilled labor and it probably had outside of longer lag time and due to that and again for us may be even nine months. On the upside, we’re speculating a bit, we are trying to forecast and learn from some of the industry experts. It might ramp up more quickly and we want to be ready for that.

Got it. Okay, thanks for your perspective. Appreciate it.

And our next question comes from the line of Mitch Kummetz with B. Riley. Please proceed.

Yes, thanks for taking my questions. I just want to drill down the, on the kind of revised guidance little bit so, Greg you mentioned kind of three buckets. I think the first one obviously very clear. The second one on the change of the outlook on the oil patch, is it fair to assume that you’re looking for similar run rate in Q4 as you experienced in Q3 meaning, kind of text has down that single the rest of the oil patch down high single digit, it sounds like that’s kind of what the trend is way in that quarter that how we think about that?

Yes, I would say we expect for us a little bit of improvement but still I call it significantly negative, that’s tough.

Okay. And then on the in terms of third piece on the merge margin, I know you say that merge margin was down 30 bps in the third quarter and are you expecting it to be a bigger pressure point in Q4 as any way to quantify that and then how should we think about kind of the split between the mix shift the e-commerce versus of worse promotional environment.

Yes, I mean the way we kind of looked at that is order of magnitude so the e-commerce is having a bit more of an impact I think then the, the clearance activity in January that I talked about, it’s about all the color I can really give you I think.

Okay. Is if you expected to be worse than down 30 like it was in Q3?

Yes, we do expect to be worse than that.

Okay, all right. And then obviously to your guys credit you leverage the SG&A a bit in the quarter and is that something does the guidance contemplate some SG&A leverage in Q4 or is not the case.

Yes, let me come back to the merchandise margin rates just a minute, the year-over-year compares a little polluted if you well because Q4 last year we took the shrink charge so, you have to adjust that out of the results and then expected that would be a little bit lost and what we saw in Q3. In terms of, the second piece OpEx leverage, yes I mean we did benefit from the 53 week that give us some leverage and with us plus two comp at the high end of our range, we would expect to see a little bit of leverage.

Okay. All right and then lastly I know it's little early to ask about the next fiscal year but just kind of a reminder on the leverage point it sounds like, you just had a plus two some leverage on the SG&A side. Remind me kind of what the leverage points are both occupancies and SG&A and then any other puts and takes we should be already thinking about for next year maybe with regard to mix on e-commerce or anything like that, that could impact the business?

So we've only really given guidance about this year in terms of leverage points and we haven’t modeled out what our new store plan is et cetera. So I mean there is moving parts would make it difficult for me to give you 2018 guidelines but again as a reminder occupancy is in that 3, 3.5 range and OpEx is 1 to 2 and so we tend to get leverage of the combined three comp or less, that's how we picked this year. In terms of puts and takes this year, next year I mean obviously we won't have the benefit of the 53rd week next year which will be a challenge. We do expect to continue to see e-commerce accelerate specifically in Q3 because we saw that happen in the last two years and we expect that to continue, so that will put a little bit of pressure on overall operating margins but again as Jim said we made some investments and we’re working hard to merit that gap because we do want to be agnostic from a profitability perspective regardless of where the channel, the customer comes to us from.

Got it. All right, thanks guys. Good luck.

Our next question comes from the line of Tom Nikic from Wells Fargo. Please go ahead.

Hi good afternoon everyone. Thanks for taking my questions. Just wanted to kind of ask a quick question about the Q4 guidance. Even stripping out the $0.03 from the extra week, it kind of seems like a lot of growth in Op income and EPS, is that kind of like function of some of those things you talked about like the shrink accrual and I guess it just kind of seems like a lot of margin expansion in the fourth quarter and I have little trouble reconciling that?

Yes, I mean you are right in terms of that the shrink accrual is definitely - I’m sorry the shrink accrual is definitely something we don’t expect to repeat in Q4, the 53rd week of $0.03. We do have a comp assumption at the high end of plus two and so we start to get some leverage there and so if there is a variety of initiatives both in expense and margin that will cost in.

Anything in particular as far as those initiatives go or just…

Yes, we are working very hard to optimize our labor in stores and so, we've been working on that for, four, five months and I think we got to a point where we’re pretty happy with how we've got the stores staffed and making sure we’re maximizing selling associates on key selling days and minimizing that investment on days were, those misses light…

All right, great, thanks very much. Best of luck in Q4.

Your next question comes from the line of Alex Pham with Mizuho Securities. Please proceed with your question.

Hi, guys thanks for taking my question. I was wondering if you could talk a little bit about the e-commerce drag and I guess is bridging that difference between for the store and online profitability more function of scale and increasing the penetration or is it more in terms of fulfillment and sort of the back office operations of getting product to customers. And then just follow up on that in terms of - have you guys talked about the overlap between sheplers.com versus bootbarn.com. I only asked because Jim you mentioned that you were - the company would start introducing some of the Boot Barn private label on to Sheplers and I was wondering if that would be a concern from a brand perspective. Thanks.

Okay. On the first part of your question the e-com drag, I think our e-commerce business is nicely profitable, it’s just - and frankly it's probably equally if not more profitable then a lot of pure play e-commerce businesses, it’s just not quite as profitable as our stores business that gets a lot of leverage on occupancy. Into your question, what’s driving that well, there is - the two big things and the stores have the cost of rent and payroll. On the e-commerce side the - increase cost of e-commerce side that strengths the profitability there is one the merchandise margin is a little bit lower. Two, the cost of customer acquisition so marketing in general is higher and frankly typically for an a e-commerce they're little bit more obstacle, so the life time value of the customer is a little bit lower in general. We like the strength of our brands because that helps us maintain the lifetime value of our customer bit more but frankly we and I think most people spend more money in marketing to get an e-commerce sale then a store sale. As you kind of go through the cost beyond that, the - then we have to get to the product to the customer and now we're overnight shipping in some cases or sorry - two way shipping in some cases but at minimum we offer free shipping for product - for sales over a particular threshold typically boots will ship for free, because they almost always over that threshold. So for a huge portion of our business we’re shipping a product for free and that just erodes the profitability a bit more. Now a portion of it, you’re exactly right, in scale right so if we can lower the operating cost of…

No, that was extremely helpful. Thank you.

There are no further questions at this time. I would like to turn the call back over to management for any final remarks.

Thank you everyone for joining the call and we look forward to speaking with you on our fourth quarter and fiscal '17 year end call in May. Thank you very much.

Thank you. Ladies and gentlemen this does conclude our call for today. We thank you for your time and participation. You may disconnect your lines at this time. Have a wonderful rest of the day.