Good day, everyone, and welcome to the Boot Barn Holdings Incorporated First Quarter 2020 Earnings Call. As a reminder, this call is being recorded. Now I’d like to turn the conference over to your host, Jim Watkins, Vice President, Investor Relations. Please go ahead, sir.

Thank you. Good afternoon, everyone. Thank you for joining us today to discuss Boot Barn’s first quarter fiscal 2020 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 is available on the Investor Relations section of Boot Barn’s website at bootbarn.com. Shortly after we end this call, a recording of the call will be available as a replay for 30 days on the Investor Relations section of the company’s website. I would like to remind you that certain statements we will make in this presentation are forward-looking statements. These forward-looking statements reflects Boot Barn’s judgment and analysis only as of today, and actual results may differ materially from current expectations based on a number of factors affecting Boot Barn’s business. Accordingly, you should not place undue reliance on these forward-looking statements. For a more thorough discussion of the risks and uncertainties associated with the forward-looking statements to be made during this conference call and webcast, we refer you to the disclaimer regarding forward-looking statements that is included in our first quarter fiscal 2020 earnings release as well as our filings with the SEC referenced in that disclaimer. We do not undertake any obligation to update or alter any forward-looking statements whether as a result of new information, future events or otherwise. I will now turn the call over to Jim Conroy, Boot Barn’s President and Chief Executive Officer. Jim?

Thank you, Jim, and good afternoon. Thank you for joining us. On today’s call, I’ll discuss the highlights of our first quarter results as well as the progress we have been making on each of our core strategic initiatives. Greg will review then our financial performance in more detail and then we’ll open the call up for your question. We are extremely pleased with our start to fiscal 2020, as first quarter results improved significantly on a year-over-year basis, despite cycling a very strong double-digit comp in the first quarter last year. Our consolidated same-store sales showed sequential acceleration with an increase of 9.4% in the quarter. Consistent with the past several quarters, we saw broad-based strength with virtually all geographies and product categories posting gains. In terms of channels, our retail same-store sales increased 11.1%, marking our ninth consecutive quarter of positive store comps at our retail locations. E-commerce sales increased 0.9% as we continue to focus on maximizing the EBIT dollar contribution of our digital business. The same-store sales two-year stack in both our stores and online channels increased more than 20% for the second consecutive quarter. In conjunction with the strong revenue growth, we once again demonstrated significant merchandise margin expansion. A clean inventory position drove more full price selling in the quarter as we continue to minimize promotion and clearance events. This coupled with a significant expansion in exclusive brand penetration drove 150 basis point increase in merchandise margin. We also saw a healthy expense leverage in the quarter with an improvement of 90 basis points in our SG&A rate. A combination of strength across the P&L drove significant year-over-year growth in both operating income and earnings per share. Excluding the impact of the tax benefit from the exercise of stock options in both years, we…

Thank you, Jim. Good afternoon everyone. In the first quarter, net sales increased 14.7% to $186 million. Sales growth was driven by 9.4% increase in same-store sales, sales from new stores added over the past 12 months from the sales contributions from acquired stores. Gross profit increased 20.8% to $62.2 million or 33.5% of sales compared to gross profit of $51.4 million or 31.8% of sales in the prior year period. The 170 basis point increase in gross profit rate resulted from a 150 basis point increase in merchandise margin and 20 basis points of leverage in buying and occupancy cost. Merchandise margin rate increased as a result of better full-price selling and growth in exclusive brand penetration. Operating expense for the quarter was $46.1 million or 24.8% of sales compared to $41.6 million or 25.7% of sales in the prior year period. We leverage the operating expense by 90 basis points on higher sales. Income from operations was $16.1 million or 8.6% of sales in the quarter compared to $9.8 million or 6.1% of sales in the prior year period. This represents 260 basis points of improvement in operating margin. Income tax expense was $2.4 million in the quarter, based on an effective income tax rate of 20.1%. Income tax in the first quarter of last year was a $1 million benefit resulting from stock option exercises. We now expect our tax rate for the balance of the year to be 25.2%. Net income was $9.7 million or $0.33 per diluted share compared to $6.8 million or $0.24 per diluted share in the prior year period. Net income in the current year period and prior year period includes $0.01 or $0.09 per share of tax benefit respectively from the exercise of stock options. Excluding this tax benefit net income…

Thanks, Greg. We are very excited about our first quarter results from the positive momentum that has continued into the current quarter. We are confident in our ability to drive same-store sales, strength in our omni-channel experience, growth in exclusive brands, and continue to expand our national footprint through new unit growth. I would like to thank the thousands of associates in the stores, distribution center, call center and helpline office for their hard work and dedication to growing the Boot Barn business. Now I’d like to open up the call to take your questions. Madison?

Thank you. [Operator Instructions] Our first question will come from Matthew Boss from JPMorgan.

Great. Congrats on another solid quarter, guys.

Thanks, Matt.

Thanks, Matt.

Jim, so with 21% gross profit dollar growth actually on top of 24% expansion is durable, maybe can you speak to how you’re managing that balance today between the top line growth and bottom line profitability? And how does your position as the Western wear industry leader factor into the process, do you think?

Sure. Well, if we look at the two channels separately, right, on the store side, a combination of more full-price selling, right, we’ve eliminated our anniversary sale in this quarter, we’ve been eliminating promotional period over the last several months as you all know. Our inventory is extremely clean, so we’re not clearing as much goods, and we’ve grown exclusive brands. So we’ve been improving merchandise margin significantly on our store side and on our e-commerce side. From the store side, the other thing that’s been helping us of course is the higher than modeled, if you will, same-store sales growth is giving us some really nice leverage and occupancy. So in store side we’re getting fortunately, and we feel great about this, we’re getting significant top line sales growth from the same-store sales perspective, improving our merchandise margin, getting occupancy leverage and that’s all just driving right to operating income or EBIT on the store side. On the e-commerce side, we’ve been very explicit about focusing on growing operating income and EBIT margin rate for e-commerce business. And in the most recent quarter we saw that grow strongly again. It’s a little unusual to have the stores’ business growing so much stronger than our e-commerce business, but when we look at the EBIT improvement, we actually are quite pleased with that strategy and I’m glad we’re continuing to follow through with it. So in terms of the final part of your question, regarding being a leader in the industry, I think the way we view Boot Barn is we’re truly a lifestyle brand. We have a massive addressable market and extremely loyal customers. They’re looking for their authentic provider of boots and apparel both in Western and work, both on men’s and the ladies’ side of the business. And we’re the go-to place. I think that coupled with the fact that we have proactively been trying to attract more customers outside the core Western and core work part of our business and we seem to be getting some results there as well. So now, but, we’re just – we’re extremely pleased with the business and we can point to a number of things that we have underway that seem to be providing really nice growth top line and bottom line. And we feel great about the start of the second quarter and the fact that we were able to cycle our anniversary sale and not repeat it this year and we kind of rolled right through it, not behind us and we’ll see how the rest of the quarter unfolds, but sales growth continues to be strong. And when you’re not discounting the boosts by $20 or $15, our merchandise margin rate was of course significantly higher.

Great. And then just as a follow-up. On gross margin with the less promotional stance so far quarter-to-date is as you stated, how best to think about second quarter merchandise margin expansion opportunity maybe relative to the 150 basis points in the first quarter? And I guess how’s the best way to think about sizing up the merchandise margin opportunity in the back half of the year?

Yes. I would – I guess the way I would – Matt, it’s Gregg, of course. I guess the way I’d think about it is it likely will expand beyond the 150 given – the sale was a two-week sale last year. So it wasn’t a month long sale, it wasn’t a third of the year, but it was 12% or 13% of that quarter if you will. So it’ll be above the 150, but we haven’t given much guidance beyond that. I guess when you model out the guidance that we’ve provided and you think about leverage points, most of the margin expansion or the earnings expansion will come at the merchandise margin line. And then, if you think about the rest of the year, this past quarter we grew exclusive brands by about 500 basis points, and we’re pleased with that. And so that – there’s no reason for us to think that that’s going to temper down, if you will, so merchandise margin for the year now could look ongoing outside of Q2 to be 50 basis points of improvement in Q3 and Q4.

That’s great color. Congrats again, guys.

Thanks very much, Matt.

Thanks, Matt.

Our next question will come from Peter Keith with Piper Jaffray.

Hey, good afternoon, guys. It’s actually Bobby Friedner on for Peter. Really nice quarter.

Hey, Bobby.

I just want to follow-up on the merchandise margin, specifically on your e-commerce profitability initiatives. Maybe anyway to frame up how these initiatives are impacting EBIT margin. And then also how we should think about the tale of the e-comm probability benefit as you start to lap it from fiscal Q3?

Well, Bobby, it’s Greg. We’ll start to lap it. We’ve already started to lap it. We did the work and made those reductions largely in the April and part of May quarter, month of Q1. So in Q2 we’ll be up against that profitability initiative. If you think about e-commerce, it’s roughly 17% of our business around the year, and so the improvements we’re making are certainly selling through the consolidated margin expansion, but it’s to a lesser degree given just the penetration of the e-commerce business. We haven’t really quantified what that GAAP looks like, but needless to say, it’s – it could be 20 or 30 or 40 basis points of improvement at the consolidated line by improving that profile.

Got it. Thank you. And just one more if I can on the comp guidance maybe, seems like trends remain very robust. Full year guidance though would seem to imply a drop off in the back half of the year, that’s mainly just a function of conservatism or is there anything else we should be aware of? Thanks.

Yes. Bobby, Greg again. That tends to be how we look at it is, one quarter out, we certainly feel pretty good about how the year has unfolded so far. As Jim mentioned, wrapping the anniversary sales from last year and quarter-to-date being at a plus 8%, we feel pretty good about the business. But we haven’t really changed how we think – how we had originally planned the back half of the year. So that’s – we’re raising our guidance mainly based on the Q1 beat with also folding in the change in the revolver balance and paying down the term loan. And we did bump our Q2 same-store sales expectation a little bit.

All right. Got it. Thanks a lot guys.

Thank you.

Thanks, Bobby.

Next we’ll go to Jonathan Komp with Baird.

Yes. Hi. Thanks, guys. I wanted to ask your take a little bit on the environment. And maybe first, Jim, the comment about stores outside of Texas accelerating, maybe what you would attribute that to, and then also or on a prospective basis within Texas? Any thoughts on kind of the environment and sustainability there, especially with a few of the macro level oil indicators softening a bit? Just curious to hear your take.

Sure. Look, as a company, we try to have a quiet confidence in modesty about us, but candidly I think our results are the results of good execution, right. We are – the employment is strong right now, but it’s not really any stronger than it was last year. The oil environment is relatively strong this year. It’s not any stronger than it was last year. So our business has grown almost 10% comp and 100% earnings and I can’t really point to anything in the external marketplace that different than last year other than the things that we’re doing internally. So I hate to be so immodest about it, but I feel obligated to give credit to the team that’s driving this business forward. In terms of sustainability, last year we comped up plus 10%. We just comped up plus 9.4%. We’ve run about plus 8% for 10 years. So I think it’s very sustainable. And frankly, I might add, I think the connectivity to the price of a barrel of oil at this point has become a little bit overblown because I think when I look at the price of a barrel of oil and our recent results, oil is the same as last year or actually down a little bit and our results are up. So I think that correlation I think has continued on longer than it’s actually been a reality for the business. So we’re excited about the business. We’re excited about the quarter. We’re excited about the current quarter. The Texas business continues to be strong. It’s pretty much in line with the most recent two quarters and the rest of the country continues to improve. So kind of firing on all cylinders.

Okay, great. And then maybe a follow-up on the e-commence. So you might have touched on some of this already, but just curious when you look at kind of the May-June run rate, if that’s more, how you think of the top line trajectory going forward or kind of what growth rate you might settle in and what you might be baking in for the balance of the year here?

Yes. Jon, it’s Greg, of course. The e-comm business, in the first quarter was flattish which kind of was what we thought or maybe even a little bit better as we are in Q2 and have a plus 8 stores have outperformed e-comm, so you can deduce the e-comm business to its mid-single digit. And as we’ve looked forward for the year, we expect the business to be mid- to high-single digit. Again, we’re going to continue to evaluate the business and the profitability of the business. The Boot Barn e-comm business continues to be very strong. The Sheplers business has been a little bit tougher. And as you may recall that the Sheplers business is driven more by pay per click advertising, and pay per click advertising cost has gone up. And so we’ve moderated our spend in that that has a top line implication. From a profitability perspective, it doesn’t change. It helps the rate if you look as, we’re giving up sales that may have been lower margin. So we’re going to continue to grow the e-commerce business in a profitable way.

Okay, great. And just last one for me, Greg, following up on kind of the second half margin outlook, I think you mentioned most of the expansion of the merchandise margin rate, so just curious on the buyers and occupancy piece of that. Are you kind of implying flattish expense there? You’ve kind of implied 4%-ish comp in the back half. Just wanted to get your sense as the unit growth ramps up how you’re thinking about that?

That’s right, Jon. Roughly, you know what, 4.5% comp will get – will leverage occupancy in buying cost. So we’ll get a little bit of leverage at a plus 6% for the year.

Okay, great. Thank you.

Thanks, Jon.

Thanks, Jon.

Next we’ll take a question from Oliver Chen with Cowen and Company.

Hi. Great results. Regarding the primary driver, the better than expected comp, what are your thoughts on how that manifested in the lens of perhaps new versus existing customers or thoughts around where your product assortment most outperformed? Other question was just about optimization of selling space. And as you brought in private label, what are your thoughts on the magnitude of that impact and timing? And how that will manifest into the numbers? Thank you.

Thanks, Oliver. I would say there’s two drivers. There’s multiple drivers, but the two big drivers were of course same-store sales, the point you called out that we are higher than the guide, and I guess higher than what The Street had. But the other piece of it was merchandise margin rate and that’s a pretty significant driver of the earnings and EPS growth that we’ve experienced in the beat that we just announced. On the same-store sales piece, it’s extremely healthy same-store sales growth. Once again, transactions or the average transactions per store was the bigger piece of it. We did see some growth in the size of the basket as well, more on the AUR side than on the UPT side. But it’s nice to see more transactions. We saw a nice pickup in the number of customers on comp store basis consistent with much recent quarters. So from a same-store sales perspective, again, feel very good about the health of that growth. From a category standpoint, a couple of categories that have been growing for several quarters in a row now have continued to grow strongly. And again, virtually every category was ahead. Work boots and work apparel were the biggest drivers, hats, cowboy hats, ball caps et cetera, it was also very strong consistent with prior quarters. Ladies’ Western apparel was strong. The other thing that’s nice to see is, if you were to really pick apart the wording, over the last couple of quarters we’ve seen growth in ladies’ Western boots, which had been a drag on the business for several quarters in a row prior to Q4. And that business went ahead in Q4 and that business went ahead in Q1, the quarter that we just announced. So that was a nice additional enhancement to our overall comp. From a selling space perspective, what we’re starting to see is that there’s a pretty strong disparity between the sales productivity and the margin dollars per square foot across categories, particularly in some of our higher volume smaller footprint stores. So it’s as simple as moving or downsizing some departments like accessories or home, and expanding work apparel and work boots, and it’s – we’re just arbitraging the space, we’re getting higher sales productivity, higher margin rate, higher margin dollars per foot when we take – when we minimize some departments and expand others. So that’s what’s going on from the selling square footage perspective. And we’ve got some of that behind us and a couple of dozen stores left to go in terms of continuing expand the base and inventory dedicated to the work side of the business. Does that help?

Yes, very helpful. And on private label, you mentioned broadening it. It sounds like you’re really pleased with the momentum you’ve made across your unique brands. What have you learned so far and how do you manage the risk of the inventory and fashion changes as you continue to dive deeper into private label?

It’s a great question. So we’re very pleased, right. We’ve been growing exclusive brands by about 2.5 points each year for the last several years and we’ve just downshifted to about 5 points in the most recent quarter coming after the fourth quarter, which was also quite strong. So we’re quite pleased, pleasantly surprised by the fact that we’re able to expand the exclusive brands assortment. From the stores’ perspective, it’s turning every bit as fast as the rest of the vendors and rest of the brands in the store. So which is a great testament to exclusive brands business and the exclusive brands team that’s putting that product together, particularly given that some of these brands are new. From an inventory investment standpoint and a fashion risk standpoint, I don’t think the risk in our business and in our assortment has really changed all that much based on the increased penetration of exclusive brands. And it’s a couple of reasons for that. The biggest one is we’re seeing some really nice expansion in exclusive brands on the work side of our business, on the men’s Western side of our business. And of course we feel great about idling by Miranda Lambert and Moonshine Spirit, which could be considered a little bit more fashionable. But the most of the growth is coming from categories that have virtually no markdown risk. So whether they’re products in the store or is in our distribution center waiting to replenish the stores, we see very little fashion risk in the vast majority of any of our inventory in certain areas of exclusive brands inventory. So any image of an uptick in fashion risk is also more than extinguished by the merchandise margin rate improvement that we get. So I would not add that to a list of worries if not on a list of the things that keep me up at night at all.

Okay, great. And our last question is about your relationship with Amazon and thinking about maximizing digital profitability, and also thinking about the customer base they offer. So what are your latest thoughts on your partnership and guardrails around how you can benefit from that relationship?

Amazon – what we view Amazon as another selling channel of course, but also a way to get eyeballs on some of our exclusive brands. So it’s a pretty small part of our business, if I’m honest, given the rev share piece that Amazon takes, it’s not a tremendously profitable part of our business or part of anybody’s business. But if we do view it as a way to get our brands in front of more people, and I think we’re pleased with it, but we don’t intend to double down on it either. We’re very happy that our stores business continues to grow and our bootbarn.com business continues to grow. And our focus is really on those two channels.

Thank you. Best regards.

Thank you.

Thanks, Oliver.

Our next question will come from Janine Stichter with Jefferies.

Hi. Good afternoon. Congrats.

Thank you, Janine.

Just interested on going back to the private brand penetration. And you mentioned about 500 basis points this quarter, which I think was the strongest growth in a while. Does this change how you’re thinking about the ultimate long-term penetration? I think you’ve talked about getting to 20%, let us say, we’ll be there, I think this year. So how are you thinking bigger picture just in terms of what it could represent development?

Look, we’ve been really pleased with the receptivity of the new brands; Idyllwind, Hawx, Cody James Work, by the receptivity of our performance boots on the Western side. So we’re excited about that. Having said that, we always remind ourselves and want to remind investors that 80% today of our business is built on third-party vendor – partners and they truly are partners in helping us grow this business. So we’re – we like the fact that we’ve gotten to 20%. I think there’s definitely upside to the 20% and we could get to 25% or 30% over time. But we don’t think and we haven’t modeled and we’re not planning to get exclusive brands through 50%, 60%, 70%, of our business. In the model that we have, it will burn is to provide our customers with a broad assortment, selection of brands and that’s how the business has grown over several years and we want to continue to do that. Having said that, we like the fact that we can get some competitive differentiation, some margin enhancement and build some excitement with new products with our own brands. So I think big picture that 20% might be 30% a few years from now, I don’t think it’ll be 50%.

Okay, great. And then I was hoping you could speak to the opportunity of when there’s a little bit, I think you’ve said it’s something like 50% of your traffic, but only a quarter of your sales. So what kind of growth do you see from the female consumers, especially as you grow lines like the Miranda Lambert collection?

We see real nice growth in ladies’ apparel. A portion of that growth I think is due to the fact that we’ve segmented off of our customers into not only work in Western, but we’ve added this fashion segment called Wonderwest. And some of our growth is due to that segment, the marketing associated with that segment, which is bringing in net new customers. The uptick in the ladies’ boots business, which is early and not super significant just yet is important although I think because it has been at least a couple of three years, where that business has been flat or down. So it’s nice to see that business starting to grow a little bit. I think we’ll continue to shade more male than female in terms of business partly because the female shopper tends to buy more for the male shopper than the male shopper buys for the female shopper, and partly because the men’s boots tend to be a higher price point than ladies’ boots. But, yes, with that said, it’s nice to have another gross lever at our disposal. We’ve been relying a lot on outsized both in work apparel and work boots. And if we can get, start to get. I’ll continue to outsource ladies’ Western apparel and start to really ramp up ladies’ Western boots this bode well for the future.

Great. Thank you.

Thanks, Janine.

Next we’ll take a question from Paul Lejuez with Citi.

Thanks. It’s Tracy filling in for Paul. My question is about the new customers you’re attracting. You talked about attracting some outside of your core work in Western customer. And wondering if you have a sense of how you’re performing with the millennial customer and if you’re targeting your marketing at all to try to capture that customer? Thanks.

We’re having nice growth in all customers, but that really a nice work in work and some nice work in the fashion customer. And we do use different marketing channels and a different media mix for each of our customer segments. So on the millennial side, we’ve been really accelerating our activity and to some degree of spend on social media. Instagram mostly and we’ve seen some really nice results there. And I think the millennial customer is continuing to find us more and more. With that said, and we certainly want to nurture that business. Our core customer is 44 years old and we don’t want to take our eye off the ball for the core Western and core work – work customer that has been extremely loyal to us. He’s comfortable on our store, he’s comfortable with our marketing and he is the vast majority of our top and bottom line at the moment. So I would say we’re nurturing that business. If you think about the millennial piece, but it’s still the smaller portion of our overall revenue base.

Great. Thanks guys.

Thank you.

Thank you.

Next we’ll take a question from Dylan Carden with William Blair.

Yes. Hi, thank you. Just curious if there’s any sort of – if you could give us a sense of timing around the B2B platform, when that goes live and sort of what to expect how much of that is flowing through your assumptions at this point for the year?

So on the second part of it, we haven’t attributed any outsized sales growth to that part of the business. So, it’ll be part of our overall B2B business or commercial accounts business which is a low single digit portion of our sales base today. I think the way we’re thinking about it is we wanted to get outline, and if you launched this quarter. In order to help our sales team, account sales team. Land accounts. So that they can go out to bigger accounts, they can go after accounts that required, an electronic means of selling and keeping track of what they’re clearly buying and wearing. So we haven’t really find a massive sales growth to that portion of the business.

Great. And then I’m just curious on sort of the removal of the promotion in July. I think I have already sort of done that before recently. What’s the opportunity to go for the next year or so to kind of keep on scaling back some promotions and do the new system some of the new omni applications that you’ve added sort of late to be a little more targeted in your promotional activity and sort of what’s driving that?

Sure. Well. We often quote that, about 85% of our stores business is conducted at full price and for now north of that number. Taking away this anniversary sale was somewhat of an aggressive move. We’re quite pleased with the result of it. We do have a couple of other things throughout the year that we’re going to continue to look at and tweak and review and either shorten or eliminate et cetera. But with the exception of Thanksgiving, Black Friday, Cyber Monday and maybe Doorbuster around Christmas, so we don’t have a lot of sale periods remaining. We have a couple of things on promotion from time-to-time, but we don’t have a patterned sale left on the calendar actually. So we think there’s still some opportunity to build merchandise margin with exclusive brands. We think there’ll be fewer clearance markdowns, but the inventories are very, very healthy and clean. And we’ve been very targeted where we are using our clearance sales now really only going after stores, individual stores that are heavy. But in terms of big sales unless we start to take a very aggressive stance to eliminate sales around the holidays, there’s not a lot of other sales left on the calendar.

Great. Thank you very much.

Thank you.

Thanks, Dylan.

Our next question will come from John Morris with DA Davidson.

Hey, thanks. My congratulations to everybody there as well. We talked a little bit about some of the new stores new areas that you’ve gone into. For example, you’ve been into some regions I think lately. Wondering maybe if you want to take some of those and talk about how you’re tracking relative to the history of entering new markets and doing so on a unit performance basis?

Sure. The new store model that we quote of three year payback $1.7 million annual sales, it is really the model that we use for new markets, essentially brand new market. So if we were to open a new store in Texas or a new store in California, we would likely exceed those numbers. As we look at the new markets that we’ve been entering that $1.7 million top line roughly three year payback or better it still holds. And we feel good about it. One of our most recent new states was the state of North Carolina and North Carolina has played out very well from a payback standpoint. And that gave us sort of confidence to continue to go north into Virginia Beach later this year. We’ve got two other Virginia openings later this year in Ashland, Virginia and Roanoke. So I really feel – that we feel good about the expansion in brand new markets and that that’s important for us because we do believe that we can take a 240 store chain up to 450 or 500 stores and in order to do that we’re going to need to expand in the mid-Atlantic states and up into the Northeast. So all evidence right now seems that, that will be something that we can continue to do successfully.

And Jim, I mean any change in product performance does it matter if some of those markets like North Carolina and Virginia Beach compared to say core markets in Texas. Differences in performance by product reclassification or do you think at all about you know tailoring the assortment even differently at all – they’re wondering about?

Sure. Great question. We absolutely tailor our assortment by region of the country. So I hesitate to say store-by-store, by the North Carolina assortment is different than the Texas assortment which is different than the California assortment. But the one thing I would point out though is when you look at the business in North Carolina for example in Virginia Beach. I think the natural inclination of most investors and certainly most East Coast investors are, those stores must shade massively to worked and not sell cowboy boots and cowboy hats, but that is not what we’ve seen at all, that the percentage of the business between Western and work is pretty consistent where Western outpaces and out sells work across the entire country. And it’s as true in North Carolina as it is in Texas. Having said that, the profile of the Western boots is different, some markets prefer leased up work boots. Others prefer a pull on work boots. Some markets need flame resistant work apparel. Others don’t. So we do those, market-by-market and make sure that we’re bringing the right assortment to that local market. But we are still first and foremost a Western store and work is still about a third of the business.

That’s great color. Good luck for all guys.

Thank you.

Next we’ll go to Tom Nikic from Wells Fargo.

Hey good afternoon gentlemen. Thanks for taking my question. I want to ask Greg, it seems like given your commentary around merchandise margin and how we should think about it for Q2 and the back half. It would seem that there would be a lot of upside to your EPS guidance unless there was an offset on the Austrian airline. I’m just kind of wondering are you sort of reinvesting some of the upside that you’re seeing on the comp and on the merchandise margin side in SG&A and if so where are those buckets of investment going?

So Tom, what we did was, we updated our guidance for the Q1B and for the Q2 slight uptick in the same-store sales expectation. I tried to give some color around what’s going to happen in Q2 from a merchandise margin perspective and that’s certainly reflected in our EPS number. When I talk about 500 basis points of expansion in private brands for the back half of the year and how that ripples through the 50 basis points. We haven’t updated for those kinds of results. Right. So we’ve left our back half of guidance if you will original guidance intact. So you can float after your model and figure out what you think it is. But we haven’t come out with specific guidance about the back half. That reflects that penetration going up to 500 basis points, from what we might have thought would be 300 basis points or 400 basis points as a reminder in Q4. Our exclusive brand penetration was roughly 400 basis points of increase.

Got it. Understood. Following up. Thanks guys.

Thank you.

Our next question comes from Sam Poser with Susquehanna.

Good afternoon and thank you for taking my question. I wanted to follow-up on Tom’s question. Last year you grew your SG&A around 15%, it only grew to 11% in the first quarter of this year. I mean how should we think about, what is, how are you thinking about that on a full year basis for growth, was the growth held back at one or is 11%.

Yes. Sam, it’s great of course. And I think the way we talked about operating expense in the – on our Q4 call where we talked about guidance was in terms of leverage points but also in terms of overall growth. I think we thought that SG&A would grow roughly at 8% annual price or something like that. I don’t have those notes in front of me, but we also talk about it in terms of leverage points. And we expect to get leverage in SG&A at roughly 1.5%, but there was nothing in the first quarter…

That hasn’t changed. So I mean you said that you had business to get 50 basis points of merchandise margin improvement in the back half of the year. Now you said that earlier in the call, and you’ve raised the full year numbers that you’ll get some leverage or flattish on the other side. And if you hit those – if you get the comp plan you’ll get leverage every quarter on the SG&A well. So if it’s adding up significantly more than that.

All I can tell Sam, as we’ve updated our guidance based on our Q1B and Q2 updated same-store sales, which is what’s driving the original guidance of the plus 5 to be a plus 6.

Thank you. And then a couple other questions. Number one, on the work business, how much do you think your work business needs help from Sears bankruptcy and from other people that play there a little bit, struggling a bit at this time? And how much of that growth needs to be helped by that?

I think we’ll probably picking up share on the work side by the difficulties in some of the companies that you called out. I’m not sure if any different than the Western side. There’s no big national Western store brand that everybody on this call would know, but the Western retailer and there’s hundreds of them around the country and many of them are struggling and we’re taking share from them as well. So, I think the – our work apparel business and our work boots business, undoubtedly is gaining share from people forfeiting share. But it’s been strong for so long that I – and we have such a good team on that part of our business right now that I can’t really attribute the growth just to the demise of somebody like Sears. I would go a little further to say while undoubtedly getting some customers, they are a at different price points than we’re at. So, if you think a good, better, best, they are good or value price points and we are better or best price points. So perhaps, there’s some overlap, but it’s not like that customer has just traded Sears work boot for $189 work boot from one of our brands.

Thank you. I have two more real quick. Number one, in the comp book, did you see any variance between will you choose Texas, where you said you outperform from the stores that you rolled up from other people as Sheplers and the others versus stores that you’ve built yourself. And secondly, given the strength of work and the strength of Women’s Western, are you seeing improvement in your Denim business as well both…

Sure. On the first part, in terms of how newly acquired and integrated businesses are doing and Sheplers in several years in our rearview mirror, but we’ve looked at the Woods Boots business in West Texas or we looked at the Lone Star business, both of those businesses were mature and we acquired them, but have had pretty significant same-store sales growth after we brought in our team change the merchandising added to our assortment, integrated them from our field operations standpoint, started using the Boot Barn brands in our marketing. So, those businesses have comped higher and in some cases significantly higher than the chain average. So, when we look at making a tuck-in acquisition, we always wanted to model it to be three-year payback or better. But as soon as we start to see 20% plus comps in those stores that three-year payback gets better, of course, the other thing we look at Sam, is we can look at customer service scores in the newly acquired businesses and there has been every bit as good. And in fact in many cases tracking better even than the legacy Boot Barn. So yes, we feel quite good about the model that we have in place, where we can add tuck-in acquisitions to augment just our kind of normal new store development and with their tuck-ins, we can get three-year payback and oftentimes better once they’re assimilated into the business.

Thank you. And then on the Denim.

Yes. The Denim business has been strong in Ladies Western and on the Men’s Western side; it’s been sort of in line with the rest of the business.

Thank you very much.

But both, pretty strong.

Thanks, Sam.

Thank you.

Our next question will come from Mitch Kummetz from Pivotal Research.

Hi. Thanks for taking my questions. I still have a few, but on the private label penetration, you mentioned there was 500 basis points from last year. Can you say how much of that was from the businesses that you’ve introduced in the last 12 months? Hawx either went in Cody James work?

I can’t have in the top of my head; I would get two of the five points.

I think that’s right. I don’t have that step handy either, but that’s directionally mixed up.

Yes.

Okay.

They’re all doing well and we’re pleased with it, but Cody James is still by far the biggest and Shyanne is still second. So, even though those new brands are new and exciting, and I think have lots of future potential ahead of them, Cody James and Shyanne still are the biggest of the five brands or six brands.

And is there kind of a maturity ramp on new private label businesses, because you’ll start to lap the introduction of those, but I would imagine that you know in month 13, it’s a lot bigger than in month one as they continue to grow. is that the reasonable way to think about it?

I think that’s fair. When we launched the new brands, we try to find the balance. We went to a nice big splash of new products and in most cases, actually I think in every case, a dedicated fixture, a broad assortment enough to support decent selling. But we also have a bit of a hedge saying if this doesn’t work you know let’s make sure we’re not kind of overextended. So fortunately, they’ve all been working and they all have opportunities to the point that you’re making to expand within their current brand. So as an example, I don’t win by Miranda Lambert. We started that brand with more leather-soled bottoms, the armed broad square toe and have slowly been introducing performance sole or rubber sole bottoms. And we have – kind of broader squares have more of a core Western customer and we’ve seen nice receptivity there. So, we – and I could go through each year or we can go through each of the brands and demonstrate how they can get broader. I’ll give you one other example. today, neither Hawx nor Cody James work has FR or flame resistant apparels. And if we look at our work apparel business that’s about half of our business is one resistant. So, once we have gotten the brands to be received well by the customers and I think we can check that box, it will be introducing half our product in the FR stores and you could think a lot of that is tested, but a lot of other places around the country as well, and can expand the growth of those brands as well. So, I think you’re right and I think there is a ramp-up in a new brand and all of the new introductions, I think have very logical next steps, where we can continue to build that business.

Got it. And then there’s anything in the pipeline in terms of a new private label brand for the balance of the year or you’re guys pretty set with what you’ve introduced.

We’re pretty much set with what we introduced last year. And I know this much you tracked it extremely well. We launched three new brands and that was a lot, and we had a step-up for that. We had a work it into our marketing. We had a “squeeze them” into the stores and while we’re always sort of enticed to hey, let’s do another brand. right now, I think we’re better served in nurturing and growing, and building on the early success of the brands that are in place. Of course, some day in the future, we’ll announce, hey we’re launching X, Y, and Z brands. So, right now, we’re going to turn our attention to kind of growing and building on what’s been working with the three new launches.

Got it. And then last question I know you’re focusing on EBIT within that e-comm business. I don’t think – I don’t know if you said or you will say what was the – what’s the EBIT margin contribution in the quarter from doing that? And then Greg, I thought you said talking about 20 basis points or 30 basis points. I didn’t know if that was a comment around kind of the annual benefit from the EBIT focus on e-comm, could you just be able to hold on with that?

That’s what I was answering this that the work we’re doing could add 20 basis points or 30 basis points of improvement to the consolidated EBIT margin, right.

Okay.

Given its penetration of business…

And when it that anniversary?

So, the work really was completed in May of last year.

Okay.

So, we had anniversary in the first quarter, but we continue to look at the profitability, I mean when we sit down with the head of our e-commerce business and his team. we constantly talk about what kind of return on ad spend are we getting and what kind of – what are the things that we’re doing to drive merchandise margin and what’s the next step, right.

Okay.

I think the biggest steps we made were with last year, but we’ll continue to tweak it like we do with the retailers both in terms of promotions.

Good. It sounds good. All right. Thanks guys.

Thanks, Mitch.

That does conclude our question-and-answer session for today. I’d like to turn the call back to Jim Conroy for closing remarks.

Great. Thank you everyone for joining the call today. We look forward to speaking with you all on our second quarter earnings call. Take care.

That does conclude our conference for today. Thank you for your participation.