Greetings and welcome to the Boot Barn Holdings Third Quarter Fiscal Year 2018 Earnings Conference Call. As a reminder, this conference is being recorded. Now I would like to turn the conference over to your host, Mr. Jim Watkins, Vice President, Investor Relations for Boot Barn. Mr. Watkins, you may begin.

Thank you. Good afternoon everyone. Thank you for joining us today to discuss Boot Barn's third quarter fiscal 2018 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 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 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 on this conference call and webcast, we refer you to the disclaimer regarding forward-looking statements that is included in our third quarter fiscal 2018 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'll now turn the call over to Jim Conroy, Boot Barn's President and Chief Executive Officer. Jim?

Thanks Jim. We are very pleased with our third quarter financial results which included a 5.2% increase in same-store sales, solid merchandize margin performance and earnings that exceeded our guidance. Net sales grew 13% driven by strong retail same-store sales and modest growth in our total e-commerce business. Our same-store sales performance was broadbased with growth in virtually every major product category and strength in almost every geography across the country. We significantly improved performance in Texas. Importantly, we expanded our merchandize margin 10 basis points compared to the prior year, as full priced selling, less clearance and continued growth in exclusive brand penetration more than offset the pressure from higher than expected play incurred in the holiday e-commerce demand. The combination of mid-single digit same-store sales growth and healthy margins along with solid expense control and a benefit from insurance settlements related to losses incurred from Hurricane Harvey allowed us to achieve $0.46 of earnings, $0.03 above the high-end of our initial guidance range. Before Greg reviews the financial results in more detail, I would like to provide an update on our four strategic growth initiatives that have been yielding positive results and which we expect will continue to drive increased profitability over the long-term. Let's begin with driving same-store sales growth. Sales in our retail stores were strong during the third quarter, up high single digits driven by the combination of a healthier consumer environment, solid execution across the company and an acceleration in sales trends at our stores in Texas. Not only that we have strong growth in Houston helped by hurricane recovery and in West Texas helped up a recovery in oil. We saw very good sales growth across the entire State of Texas. From a merchandizing standpoint, we experienced solid demand across our product offering…

Thank you, Jim. Good afternoon everyone. In the third quarter, net sales increased 13% to $225 million. Sales growth was driven by sales contributions from a 5.2% increase in same-store sales, the sales from the seven new stores opened over the past year, the four stores acquired from Woods Boots and sales from the Country Outfitter site that we acquired last February. Gross margin increased 13.5% to $71.9 million or 32% of net sales, compared to gross profit of $63.4 million or 31.8% of net sales in the prior year period. The 20 basis point increase in gross profit rate resulted from a 10 basis point improvement in merchandize margin rate and 10 basis point decrease in buying and occupancy costs. The higher merchandize margin rate was driven by more full priced selling, less clearance and increased exclusive brand penetration. These increases were partially offset by higher e-commerce freight. The improvement in buying occupancy cost as a percent of sales resulted from leveraging fixed occupancy cost on increased sales, partially offset by increased labor cost in the company's fulfillment center to meet holiday e-commerce demand. Operating expense for the quarter was $47.5 million or 21.2% of net sales compared to $42.5 million or 21.3% of net sales in the prior year period. Year-over-year Q3 operating expense as a percent of sales decreased as a result of expense leverage on higher sales. The $1 million pretax net gain from insurance and other settlements primarily related to losses suffered in the second quarter from Hurricane Harvey was offset by higher incentive compensation expense in the third quarter. Our income from operations was $24.4 million or 10.9% of net sales in the third quarter of fiscal 2018 compared to $20.9 million or 10.5% of sales in the prior year period. Interest expense in…

Thank you, Greg. We are certainly pleased that the tax changes have positively impacted Q3 and Q4 earnings and will continue to benefit EPS for Boot Barn going forward. We are even more encouraged of course by the improving fundamentals of the business. We are seeing growth in nearly every major merchandize category with a significant sequential improvement in our western boot and western apparel business. We've also seen growth across the country from a geographic perspective with particular strength in our largest State of Texas. This top-line strength coupled with solid merchandize margin has us well positioned to drive growth in earnings going forward. I would like to take a moment to express my personal appreciation to more than 3,000 associates across the country as well as those working in the store support center for their hard work and incredible dedication at Boot Barn and for delivering such a solid performance. At this point, we would like to open up the call to take your questions. Brian?

Thank you. [Operator Instructions] We'll now take our first question from Matthew Boss with JPMorgan.

Thanks. Congrats on a nice quarter guys.

Thanks Matt.

Thanks Matt.

So if we broke down this 3Q comp is the math that Texas accelerated basically to high single-digit with the non-oil and gas markets amounting low-to-mid single which is pretty much -- that's a pre-oil and gas -- the period that we went through. So, I guess my question is what have you seen from Texas in January and then taking into consideration the return to e-commerce growth that you mentioned in January, is it fair to say your 4 to 5 comp guide for the fourth quarter embed a level of conservatism?

So, let me walk you through the components and you can apply in on the conservatism from this perspective. First, as we went from Q3 to Q4 our businesses, every bit is strong as it had been in the third quarter candidly it accelerated a little bit. And you are right, the Texas business becomes a bigger portion of our business in the fourth quarter than it is in the third quarter and retail stores becomes a bigger portion of our business in the fourth quarter than the third quarter. As we look at January, we've continued to see strength in nearly every geography just like the third quarter in every merchandize department just like the third quarter and as we approach mid-February when we lap the change in the e-commerce platform at Sheplers, we will certainly be cycling soft numbers. So, we've got a lot of nice momentum coming from the third quarter into the fourth quarter to the point that you are calling out. Having said that, we wanted to just remind everybody that while we have four weeks into a 13 week quarter, January is uniquely a small month, March is uniquely a very large month and while having four of 13 weeks is what 31-ish percent of the quarter. We're only 26% or 27% of the way from a sales perspective. So, we don't want to get ahead of ourselves and put out a projection that realize entirely on the month of January -- we're in the last, we're on third quarter plus the month of January with a fair amount of business left to actualize for the quarter. So that's kind of the fact, we feel good about the guidance number we provided, it's a little conservative I would say, we're just trying to put out a number that we feel good about.

Yes. I think it's more than prudent. And just one other question, on the stores, I guess two things larger picture what keeps differentiating your brick and mortar stores from Amazon and just the larger picture e-commerce threat. And then on the return to the 10% unit growth is that a reasonable target as we think about next year?

Sure. So on the first piece, what differentiates the stores from any online business is a few different things, the in-store environment in our category is extremely important that we are a lifestyle brand, our customers are extremely loyal to us, they want to come to the store and particularly on the western side, they want to touch and feel the product and importantly try it on, but they are going to spend $200 or $300 on a pair of cowboy boots. They want to make sure that they fit appropriately and the fit is pretty complicated. On the work side, often times the work customer once they come into the store, because their boots have failed them and their literally on their way to job site or they need to go and report to the job site, the following morning, and they come in and need the product kind of that minute. So there is an immediate need component on the work side. So, as it relates to how we differentiate ourselves from an online competitor Amazon being the biggest of course. The category by its nature of favors and in-store shopping experience, the honest answer is Amazon as carried our product for years at prices that are competitive for us for years. And yet we still do more business than they do in our category, in fact we believe we do more business online in our category than they do. In terms of the second piece of your question, we will specify our fiscal 2019 guidance in our next call and give you a little bit more detail around this. But, we are back kind of back in the saddle probably 10% unit growth and we're filling the 2019, the fiscal 2019 pipeline now. So, I think we will be close to or at the 10% new units for the next fiscal year that certainly what we are kind of modeling going forward, kind of just getting us back to our original earnings algorithm. Does that help?

Thanks a lot. Yes. That helps a lot.

Thanks Matt.

And we'll now take our next question from Peter Keith with Piper Jaffray.

Hi, Peter.

Hi, guys it's actually [indiscernible] on for Peter today, thanks for taking my question. So again EBIT margins, I know it was discussed a little bit at ICR, but where do you see it building to over time and what are the drivers to get there now that comp growth has come back? Thanks.

Yes. We continue to see 10% EBIT rate to be in our future, we used to have -- I think it was a little bit closer and with Sheplers and some other things we took a step back or press pause for a bit. The drivers are back when Jim alluded to the earnings drivers that we went public with a little over three years ago, which are 10% new units, while we describe as a low to mid single same-store sales comp, so call it a plus 3 or 4 and increased private brand penetration of roughly 200 basis points a year and as we talked about that grew 300 basis points year-over-year in Q3. So, all those key metrics to get to that earnings algorithm and get to that 10% EBIT rate are in place and we forget about how we're positioned for both Q4 and next year and beyond.

Great. I love this quarter.

Thanks [indiscernible].

We will now take our next question from Jonathan Komp with Baird.

Yes. Hi. Thanks guys. Greg, I wanted to start off with the guidance related question. I know with the pre-release earlier this month you gave a range for full year earnings of $0.60 to $0.64 excluding the tax impacts, I just wondered, does that changed at all and if how could you reconcile any updates?

It's changed just a little bit, we've - number one tightened the range in terms of the full year as we've finalized Q3 and also kind of tightened our sales range for the year. We are picking up some earnings due to tax rate. For example in Q4, we're going to benefit by about $1.4 million of tax expense reduction as a result of the stock option exercises. So that adds roughly $0.05 to our EPS. In addition, we're actually hurt by about a $0.01related to the cost of the secondary that occurred in January that was roughly $300,000 of cost. Those are probably the primary drivers in the change of that EPS outlook that we shared with you in early January.

Okay. So apples to apples in that range of $0.60 to $0.64 would go up to $0.64 to $0.68 excluding the tax changes, the tax law changes, is that right?

Yes. I think that's right, yes.

Okay. And any other changes to the operating assumptions you had embedded for the fourth quarter just given that your, even a few weeks further into the quarter now?

We just really tightened up the range. We do feel good about how we performed in January and we narrowed it to basically a $0.02 penny range, $0.15 to $0.16 and that $0.15 to $0.16 includes again that $0.05 of help from income tax expense and the $0.01 hurt from the secondary offering.

Okay. Great. And then I want to go back to the quarter and ask about the disruptions you had with the e-commerce integration, I'm sure you've taken a stab at this, I'm wondering if you could quantify when you look at the sales and the gross margin impact how much drag you thought it was in the quarter?

Yes, I mean I think, one way to think about it is, we had a 5.2 comp and we did guided 2 to 4 and we didn't have quite the flow through that we expected to have on the plus 5.2. So, I guess one way to kind of frame that up is we did about a point better on our same-store sales to the high-end of the range, which is worth roughly $2 million of sales and it equates to around the numbers $1 million of flow through. And we're getting really see that flow through come through, so between increased freight costs and increased easy labor fulfillment kind of invested it in and dealing with that difficulty in Wichita.

Okay. I guess sort of I'm getting trying to understand kind of the underlying merchandize margin trend during the quarter and also are you thinking about it for the fourth quarter?

Yes. So I'll answer the second part of that first. I mean we continue to expect to see merchandize margin expand around the numbers 30 basis points on the full year and thus expect to see that on the quarter. I'm not sure I, there is enough information we've shared for me to help you get to the merchandize margin expansion in Q3. Other than to say that again we expanded 10 basis points and that's net of the increased freight we have in the fulfillment center.

And, but one thing we did say Jon is private brands increased 3 percentage points, right? So there is 3 percentage points that 10 points have improved markup is 30 bps and I think everybody realizes this, but just to be crystal clear. Essentially all of the expenses associated with Wichita the freight and the labor hits gross margin, the freight piece hits merchandize margin. So, we had -- I think it's safe to say we had at least 30 basis point improvement in merchandize margin prior to the hurt from the freight piece of the Wichita fulfillment center. Well I guess we could say freight most of that million dollars of loss profit, if you, pretax profit, but so if you said I don't have the specific number in front of me, but if you've said two thirds of that was on the freight line or hit merchandize margin in a third hit DC cost, but I think that can help frame it up for you.

Okay, great. And then just one other bigger picture question, also related to the tax piece, but I'm wondering how you are thinking about kind of the two angles both the consumer facing side of -- higher take home pay coming up pretty soon here. And then, also from your side the lower rate that you mentioned 25% for next year. How much if any of that will kind of be reinvested in operating expenses or how much you'd allow it to flow through to the bottom-line and also what you may do with the incremental cash related to that?

Right. So, we think its roughly $5 million of cash effect if you will or cash to invest and right now I guess the way we're thinking about it is, we would use it to help accelerate the new store -- the unit growth, the 10% unit growth and to pay down debt. Having said that, we do see some wage pressure or expect some wage pressure just based on, pretty close to full employment. So we may have to invest a piece of that back into the business in the way of wages. But we don't know what that total impact is. But again, we're happy to do that to retain good people. So -- but right now I'd say we're thinking about that investment in terms of unit growth, pay down debt and invest where we need to get the right people on board. In terms of our customer, I think our customer is going to benefit from a bigger take home pay based on what we've seen and we tend to see when they have more disposable income they do spend it. So I think it will be good for our business.

Okay. Thank you, guys.

Thanks.

We will now take our next question from Randy Konik with Jefferies.

Yes. Thanks a lot. I guess Greg, I want to ask to go back to the operating margin opportunity. We're sitting about 250 basis points below peak, can you give us some good perspective of how it could go beyond peak? And you gave some of the drivers. Can give us a little bit more I guess perhaps granularity around ranking the different drivers in your perspective and how that might be different from what the major drivers were to keep those operating margin down from year 9% down to about 6.5% in this year. Just trying to give us -- give the investors some perspective on how we should be thinking about the importance of the different drivers to -- we expand operating margins over the medium term?

Randy, good question. I think its two things that I'll point to and Jim can also weigh in. I think one thing is, we really think that the private brand opportunity is probably bigger than we thought it was three years ago and as important. So we had an algorithm that assumed 20 basis points -- 2 percentage points of improvement in penetration year-on-year and last quarter we saw 3 percentage points or 300 basis points of increased penetration and I expect it will be evaporate or more as we continue to develop our private brand team and develop that product. So I do think that's an area where we're going to expand. The other thing is, we took a step backwards when we bought the Sheplers business that was 60% stores and 40% e-commerce. And frankly, the business we bought, e-commerce business we bought that that EBIT contribution in e-commerce was below what it is in stores. And we've made some investments in the past year to really help improve and narrow that gap. So whether it's how we think about the front-end and the scalability of driving top-line in e-commerce or investments we made in Wichita which unfortunately didn't pay for themselves in Q3 when we were at peak volumes. We do expect that to improve the efficiency of how we run the e-commerce business in the future. So I think both of those things are new and will help us claw back some of that. Jim I don't know if you've got other thoughts.

Those are two big ones. The last pieces if we can comp higher than the leverage point we'll continue to augment EBIT margin rate. We clearly have been able to do that the most recent quarter and into January. So we'll see if we can continue to do that going forward and just getting leverage on overhead fixed cost expenses et cetera that will continue to drop more rate to the bottom-line.

Understood. And when we probably maniacally focused on what's going on with the energy complex, but I think one thing that was very impactful from the ICR presentation packet was the -- and you touched it on in your remarks around the opportunity around to reach further into Hispanic customer. You touched on signage and so my guess in adding some additional sizes. Can you just kind of flush that out a little bit more so it seems like you're really see a bigger real good opportunity to further engage with that customer demographic. And just want to hear more about what we can expect to further engage with that customer and drive more revenue opportunity again over the medium term?

Sure. Great question. Going back to sort of the basic premise. We tick all 226 stores and the customers that belong to each store and went back and did reverse a pen to get their demographics to figure out which stores over indexed Hispanic and which didn't. So we've selected a grouping of stores that are getting a more focused assortment and more emphasis on that particular customer. And what that means is to the point that we mean the script and you've called out sizing to some degree it was brand mix and styles change. We ensure that we have a certain percentage of our sales associates that are Spanish speakers on the floor and all the signage or in the store are dual language. So it's a very good sort of the basic pieces of it. Beyond that we've started to reach out to that community by getting a bit more Spanish radio advertising by starting to look for sponsorship opportunities in that community. So there's a number of different kind of pieces to it. If you would go through some of our more recent creative, we've changed the composition of our models in our direct mail and our e-mail to make sure that we are representing kind of the broader swap of the demographics of our customers. So it's a lot of little things that have added up to -- I think a nice kind of momentum in that piece of our business.

That's really helpful. My last question is around the -- I guess reaching out to consumers around marketing and advertising on more of this national ad spend. Have you kind of looked at way you've done that and now some incremental national advertising, some of that change in response rate perhaps incremental customer flow through the e-commerce channel distribution. I'm just trying to get a sense of how are you thinking about your benefit, obviously, leveraging cost of water swap of the geography of the United States. But, how are you thinking about impact from those different advertising strategies national versus local different media mediums et cetera?

Yes. So now it's refreshing. We've really augmented how we segmented our customer base. So if we think about what we're doing from a media mix standpoint, we have shifted dollars from one to one marketing mostly direct mail and e-mail and move some of those dollars to broadcast media both radio and television. And one of the things that's been encouraging that we've seen in the composition of our customers is an improvement in the number of new customers to the Boot Barn brand, right? So we can see sequentially what's changed as we've changed our media mix from quarter-to-quarter and gone out and tried to explicitly bring new customers into the mix. And we've seen an improvement in the new store -- sorry the new customer portion of our customer base. Conversely we've got a couple of other tranches of customers that are customers that had shopped last year or two years ago or three years ago. And what we've done with those customers who already had some awareness of us because shopped us at least once is, we've really upgraded and improved and modernized our creative looking feel of the brand and segmented how we go after these customers very strategically. So we've been able to also see an improvement in lapsed customers returning to Boot Barn through a combination of either better and new creative or new creative coupled with segmenting our messaging so they're getting something much more tailored and customized for them. And we've seen a really, really healthy growth in bringing some of those customers back to the brand. So it internally we're excited because we're starting to see a nice marriage between the analytics of our CRM team and the math behind that or the science behind that and the art or the creativity behind our creative team. And you know it's still early days, but it's starting to build some nice momentum.

Yes. It seems like it is. So, thanks for the help. Appreciate it.

Thanks Randy.

Thanks Randy.

And we will now take our next question from Paul Lejuez with Citigroup.

Hey guys. Just looking to fourth quarter, can you talk a little bit more about the gross margin versus SG&A lines? I'm not sure if I missed it, but did you talk about why you weren't getting better flow through on the EBIT margin front in 4Q just given the better sales package that you have? Maybe we'll start there.

I'm not sure of your question on leverage is related to that last year or not. As a reminder last year had 14 weeks of business in Q4. This year we only have 13 weeks, right? So that we lose $10 million, $11 million of sales and in that 14th week and we earned about $0.03 a share during that extra week as well. So you have to adjust last year, I think for that.

Yes. On an apples to apples basis so Greg would you be looking for EBIT margins to expand?

Yes. Just one second. Pardon me, the answer is yes. Sorry.

Okay. Got you. I think can you maybe talk about new store performance and what you're seeing in some of your existing markets versus some of those that are newer less developed? And then kind of a second piece to that is, as you think about accelerating your store growth back to that 10% rate. How's that going to break down between those markets that you're already pretty deeply penetrated in versus newer markets? Thanks.

The performance in both markets is pretty good and in totality with our newest tranches of stores we're meeting our three year payback hurdle. As we think about it going forward, we'll continue to do anything about three different types of market either brand new states or markets versus completely entrenched markets versus those that are developing. I think we're probably going to be doing about a third in each of those. So we have plenty of opportunity to add stores in California and Texas sort of the most built out and mature markets. We have opportunity to fill in states that have some presence, but aren't yet densely populated. So call those the states mostly in the southeast. And then, there's a number of states where we have zero or nearly zero stores, but we know we have a decent e-commerce following and it will start to climb from the southeast up into the mid-Atlantic states and look at Virginia or Ohio or Pennsylvania and starting to look at those markets as well. So we're going to spread our bets a little bit. We like filling in existing markets because it further leverages our expense structure of both marketing and our field leadership structure. But we also want to start to expand into new markets where we know we have a healthy customer base based on what we see in e-com. So it's a little bit of a balance there.

Got you. And are there any further expenses that are impacting the fourth quarter as a result of some of the e-commerce pressures that you experienced in 3Q, is any of that carrying over? And if, so when do you expect that to go away?

Yes. Nothing meaningful Paul, nothing that would register.

Got you. Thank you guys. Good luck.

Thank you.

Thanks Paul.

And we will now take our next question from Tom Nikic with Wells Fargo.

Hi, everybody. Thanks for taking my question. This is sort of pay back on Paul's question about for expansion and new markets versus existing. And I think you used to mention in the past some percentage of your e-com business occurred in states that you didn't have any stores. Is there any sort of update you can give us as far as that metric goes? And I know it's probably not comparable to what you used to give, given that you still expanded a little bit. But I guess you could help us understand the opportunity in new markets via that metric. We will probably find it helpful. Thanks.

We used to quote a number of how many -- what percentage of our e-commerce business changing phase where we don't get up stores, a way to think about it now is, if we ranked our all the states in terms of e-commerce dollars four of those -- of the top 10 states have no stores in them. There's one exception, we have one store in outside of Chicago and Gurnee Mills Mall, very small store. But, other than that particular store, New York, Pennsylvania, Ohio and Illinois are all in the top 10 states for e-commerce. And there's no source yet. So that's kind of fertile ground for us to expand. We need to be a little careful, it's new territory, it's further away for our field leadership to get to. It potentially has a slightly different assortment than other parts of the country. But, we felt that way a few years ago when we were entering the southeast and we started slow and then expanded a little bit more quickly and feel good about that expansion. And as we grow from that piece up into the mid-Atlantic and into some of those states we'll start slowly and learn and then we'll start to expand more quickly. So that's the way to think about how the store expansion will proceed or progress and how it connects back to what we've learned from e-commerce.

Got it. Thanks. And as you I guess against the cash flows of the business as you reaccelerate store growth next year presumably your CapEx budget would also move higher. Can you just also remind us what you're planning on spending on or what the total CapEx should be for FY'18?

I guess the easiest way to think about it is, as we expect to generate between $10 million and $15 million of free cash flow after investments in CapEx for new stores et cetera this year. And if you add even 13 or 14 stores at $400,000 of CapEx that's still $6 million, we're still going to generate free cash flow. So we're not going to have to borrow to build stores or anything like that. I think that's the way to think about it because we're not going to give guidance on this call in terms of new units until next call.

Got it. All right. Thanks very much. Best of luck in Q4.

Thanks.

Thanks Tom.

We will now take our next question from Mitch Kummetz with Pivotal Research.

Yes. Thanks for taking my questions. I've got a handful but I think we can do this quickly. On the comp, I know you guys said that stores outperform digital, is there any more color you give around that. I mean was e-com positive or can you say how much better the stores were?

We didn't comment specifically. We did say that stores were high single digits and consolidator were 5.2. We did have growth in our e-commerce business if you include Country Outfitter. And so that's kind of the way we're thinking about it, I mean there's so much crossover now between channels and brands it's the consolidated number is really what we're trying to focus on.

Got it. And then, on the oil patch, I think it I think when you pre-announced or maybe even this press release, you said that Texas was better than the stores on average. And I think you'd sort of implied that Colorado, North Dakota and Wyoming were sort of in line with the stores, is that I can't remember if you said anything on the call today, I didn't see saying in the press release?

Good question. Texas is outperforming the other three states that you've called out are essentially in line with the balance of the country. Importantly though as we went from Q2 into Q3, Texas improved, those three states improved and the rest of the states improved. So it wasn't just a runaway Texas that improved our business sequentially, it was a little bit of sequential improvement in essentially every region and more than a little bit of sequential improvement in Texas.

Any way to quantify the impact of Harvey on the business in the quarter does that become less meaningful in Q4. Is it so inconsequential, we shouldn't even talk about it?

Well, if you go back -- if you go back to when Harvey actually happened, it was our Q2 we said it impacted the business by about $1 million in sales. Since then we called out the insurance benefit and we've called out that Houston is rebuilding and that helps the business in the Houston market both [work] [ph] and Western, right? As an example it's guys rebuilding properties and meeting work Boots to do it. And then there's families that need new clothing and new boots. And that's on the western side. So Houston I guess what I think about it is, Texas is better than company average, Houston is better than Texas average. And west Texas is better than Houston.

Okay. I will connect all those dots. And a two quick housekeeping, one on the guide, I know you're saying 4 to 5 comp Greg. 4 to 5 comp on the fourth quarter. I didn't see in the release that you gave an updated comp on the year. Maybe it's in here somewhere, but I know when you preannounced that ICR, if you were looking for a 3 to 4, is that still the number?

It'll be in that range given we're at 3.1 quarter to date Q3, right? Year-to-date, excuse me, year-to-date. For ICR we are reporting the number out there and we're pulling it all together and we were four days into the close. So we put a little bit of a broad range on the year and we think this range tightens enough for you in terms of how to think about the year.

Got it. And then, just in terms of tax on the quarter, I guess its $0.46 again, I don't think I saw some sort of like a pro forma tax rate in the press release. Is there a number or a rate that you can give us to kind of back into the $0.46?

For the third quarter?

It was 36.

On the third quarter.

About 38% Tom -- Mitch sorry.

That's all right, Paul. All right. Thanks guys.

Thanks Mitch.

And we will now take our next question from Oliver Chen with Cowen and Company.

Hi. Thanks, Jim and Greg. Nice quarter. Regarding the online business and what's happening there with the fulfillment and there's some good innovation with online outpost in web. A lot of the issues that you experienced, are they all resolved or what's the timing from which that should happen? And then, as you think about the digital integration with physical plus digital and also some of your prior thoughts around long tail and owning that. What are some of the supply chain considerations on a longer term basis as you make sure that you get the integration where you wanted it to be?

Okay. Good question. So the first pieces, are they all resolved? I would say many of the big ones are resolved there is some work in process on some of the others. But if not, had a massive impact on current business simply because we're not in massive e-commerce holiday peak season. So we can be less than maximum efficiency in January and still move product through the fulfillment center and meet customer expectations pretty easily. In terms of longer term focus, it's been -- last year calendar 2017 was a lot of investment of time and money and effort. First, the platform changed to demandware for all three brands. We brought Country Outfitter which we had just essentially acquired the URL over to demandware we -- we got Sheplers over, we got Boot Barn over and then we got in the warehouse and all the integration points to all of those pieces have been connected and built et cetera. So while it was a rocky road for the calendar 2017 where we stand now we're really quite encouraged. We're all on one platform or sharing one inventory and one team and we can kind of coordinate our marketing from a search engine standpoint. So we feel good about the strategy notwithstanding some of the short-term or transitory fee funds that we had along the way. We still intend to find opportunities to grow demand in long tail. We believe that's part of our differentiator from some of the other online players. And while we can often have that product drop shipped from a vendor, from an economic standpoint or from profitability standpoint, it's better if we can warehouse it ourselves and ship it and not pay the associated fees from the vendor for them to drop ship it. It also gives a better customer experience assuming by the belt and a pair of boots we want them getting one package from us rather than two et cetera. All of those components that you called out are still in place. And I think as we proceed over the next few months, we'll just get better and better and be well positioned and prepared for peak holiday demand as we get into next November and December.

Thank you. And another topic which seems relevant is your exclusive brand growth. You've done a really good job formulating these brands and also building some attractive brand equity and these brands as well as making sure your marketing is pivoting emotionally. What are some of the guardrails you're using to innovate here and kind of and taking measured risk and you'd been interesting as you look to continue to realize this has a long-term strategy and grow the penetration?

Now, it's a great question. We've done some really foundational things in the development of those brands where we have developed brand guidelines. We have assigned teams to be specifically focused on the exclusive brands. They have their own social following and pages. And while those are new, I mean we have a Shyanne page and a Cody James Page. So we are starting to view those as real brands. And I don't think this is in our medium or long-term plan to be honest, but as if we were a manufacturer and wholesaler of those brands. That's kind of how we're kind of managing the business. If you go to a rodeo and there's a couple thousand of them a year around the country many of which we sponsor, we want to not only be able to see presence of Boot Barn at that rodeo, but we want to see a presence for Shyanne and a presence for Cody James. So we're really kind of bringing those to market in a very sophisticated and professional manner. And again, just emulating what some of the world class brands have done.

Okay. And our last question is on, I'm thinking about the inventory versus sales spread going forward. Also your merchandise margin has been impressive. But, you've done a great job with that. What's underlying the dynamic in merchandise margin because your absolute level of markdowns is low? And then also when we model the inventory versus sales trends, are there any guidelines we should think about in terms of comp store inventory versus comp store sales? Thank you.

There is two different pieces in there. I think one thing is inherent in the business to the point they are making is we sell the vast majority of our product at full price. And only a portion is all promotions and all clearing. If you look at the most recent quarter, we had a high single-digit same-store sales growth in our retail stores on flat inventory on average in our retail stores. So those two things put together plus new exclusive brand increase, really had a nice merchandise margin improvement on the stores side. Unfortunately again, some of that was just simply offset some of your challenges we had and [which would tab] [ph], if we were to strip it out. Now we were pretty pleased. And I think going forward, we think that we can continue long-term or algorithm of low to mid single-digit comps. We've laid out the fourth quarter. And from an inventory perspective where we don't think we need to invest significant amounts of more inventory to drive that comp. I mean if anything we've been getting more efficient on inventory over the last couple of years. And frankly, even further reducing our clearance as a percentage of sales and our clearance in terms of how deeply we have to market the product to move it. And so are our merchants have done a really nice job of kind of cleaning up some inventory and [indiscernible] us well for calendar 2018 or fiscal 2019.

Thank you. That's very helpful. Best regards.

Thank you so much.

Ladies and gentlemen, there are no further questions in the queue. And that concludes our question-and-answer session. And at this time, I would like to turn the conference back over to Mr. Jim Conroy for any additional or closing remarks.

Thank you everyone for joining the call. We look forward to speaking with you all on our fourth quarter earnings in call in May. Take care.

And ladies and gentlemen, that concludes today's conference call. We thank you for your participation.