Good day, everyone, and welcome to the Boot Barn Holdings Fourth Quarter Fiscal Year 2020 Earnings Call. As a reminder, this call is being recorded. Now, I'd like to turn the conference over to your host, Mr. 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 fourth quarter and 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 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 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 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 during this conference call and webcast, we refer you to the disclaimer regarding forward-looking statements that is included in our fourth 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. On this call Jim will begin by providing an update on actions we have taken in response with the COVID-19 crisis. He will then briefly discuss the highlights of our annual performance and current business before concluding with a discussion of our strategic initiatives. Greg will then review the financial results. Following Greg, we will open up the call for your questions. I will now turn the call over to Jim Conroy, Boot Barn’s President and Chief Executive Officer. Jim?

Thanks you, Jim, and good afternoon. Thank you everyone for joining us on today's call. These are unprecedented times and our hearts go out to those who are suffering as a result of the COVID-19 crisis. We'd like to express our gratitude to the medical professionals who have been caring for infected patients, for the doctors and scientists working to find a solution and for all essential workers performing critical functions to keep the country operating on a daily basis. We often say that our customers feed America, protect America, and build America. Accordingly, when the COVID crisis began to build momentum, the entire Boot Barn team moved with haste to ensure that we would be able to safely provide essential merchandise to our core customers that were continuing to shop with us for products necessary to perform their jobs. We immediately transformed both our physical stores and our e-commerce site to meet their specific needs. We expanded assortments in key areas, remerchandised the stores and the site to prioritize essential products, offered advantageous pricing and developed multiple safe ways to shop and buy critical items. Nothing gives us more pride than continuing to support these American workers, farmers, ranchers, first responders and the communities we serve during this difficult time. I would personally like to thank all the Boot Barn associates who have demonstrated tremendous leadership in developing innovative and safe ways to continue to serve our customers. It is a testament to the powerful culture across the entire organization, and I am proud to be a part of it. I'd now like to present a timeline as to some of the actions we have taken during the last two months. As the crisis began to unfold, we formed an internal COVID taskforce that meets daily. We spend the…

Thank you Jim. Good afternoon everyone. In the fourth quarter, net sales decreased 2.1% to $189 million. The decline in sales was driven by a 4.7% decline in same-store sales. Same store sales were solid during the first 10 weeks of the quarter, before declining significantly during the last three weeks, primarily from the decreased store traffic as customers stayed at home in response to the COVID-19 crisis. During the fourth quarter, we added 8 new stores, bringing our store count at the end of the quarter to 259 stores in 35 states. Gross profit decreased 8.6% to $58 million or 30.7% of sales, compared to gross profit of $63.4 million or 32.9% of sales in the prior year period. The 220 basis point decrease in gross profit rate resulted from a 210 basis point increase in buying and occupancy cost and a 10 basis point decline in merchandise margin rate. The deleverage in buying and occupancy cost was primarily a result of lower volume sales. Merchandise margin declined 10 basis points as a result of higher shrink when compared to lower than normal shrink in the prior year and higher outbound freight resulting from growth in e-commerce sales. These increases were more than offset to product margin expansion from increased exclusive brand penetration and more full-price sales. Operating expense for the quarter was $48.3 million or 25.6% of sales, compared to $46.9 million or 24.3% of sales in the prior year period. Operating expense increased primarily as a result of additional expenses for both new and acquired stores and COVID-19 related expenses. Operating expense as a percentage of sales increased by 130 basis points as a result of deleverage from lower sales in the current year period and COVID-19 related expenses in the current year period. Income from operations…

Thanks, Greg. Fiscal 2020 was a great year for Boot Barn. While things may be difficult in the coming months, we are confident in our ability to navigate through these challenging times in the short term, and set the company up for a solid return to growth over the longer term. Before we open up the call to take your questions, I would like to thank the entire Boot Barn organization for their commitment and execution in fiscal 2020, which shaped up to be a great year financially. But more than that, I am humbled by the perseverance, loyalty and resolve of the entire organization as we have faced into the adversity over the past few months. I would like to especially recognize our stores organization that has shown incredible leadership who continues to take care of customers on the front line everyday. Now I would like to open up the call to take your questions. Laura?

At this time, we'll be conducting a question-and-answer session. [Operator Instructions] Our first question comes from the line of Matthew Boss with JPMorgan. Please proceed with your question.

Maybe on gross margin, what's your expectation or any range of outcomes to consider for first quarter merchandise margins maybe as we put together the multiple moving pieces that you just walked through?

Matt, we really can't give you a lot of guidance. I mean I think Jim laid out some of the pressures that are impacting margin as we see the e-commerce business is comping plus 60% on a same-store sales basis and now represents 38% of our total business. That will certainly be a headwind. We do have some clearance merchandise that we haven't been able to clear through in a meaningful way as the business was largely work focused. So we really can't help you much more than laying those kind of pressure points out, and the fact -- the other fact on e-commerce that some of our vendors have reduced the allowed upon selling price online as they want to move through product as well. So I think Jim laid those out, but we really can't put a sort of range around that.

Sure. And then maybe just a follow-up. So by region, have you seen any notable impact on sales from some of the more recent volatility in the energy market. And maybe just higher level, how exposed are you to this industry overall and just how do you think the company is positioned today relative to 2016 or 2017?

We haven't really seen a big difference geographically, I would caution everybody, it's a little hard to read through the numbers that we get every day. Right. We have some places that stores are closed, some places where they are in -- stay-at-home directives are more strict etc. Having said that the geographical differences haven't become apparent. In terms of our exposure, Texas continues to be our number one state. So what we saw last time was the oil drilling markets got impacted first and then sort of the secondary outlying markets got impacted right after that, and we saw, as you well know Matt, having been with us through that period, we saw four consecutive quarters of negative 5 comps in Texas. And when we look at the business now, too early read that we look for are telling us different things. So one, we would see a reduction in sales of flame-resistant work apparel, and we have seen that flame-resistant work apparel is comping down. Conversely, the boots that are worn in that industry are distinctively pull-on work boots as opposed to lace-up work boots, and the pull-on work boots business isn't really bad at all. In fact, given the environment is actually holding up just fine. So yeah, we are going to watch it closely and there are some places that we're exposed in maybe slightly less than we were back in 2015, because we are in more states. We have strengthened our ladies apparel business, we still sell boots to guys that are in West Texas and in Minot, North Dakota and in Northern part of Colorado and to guys and men and women network in the oil refining industry across Houston. So it's something that we'll need to watch closely. Presently, we can't really discern a big fall-off in that business relative to the rest of the business. So that's a bit encouraging. But when you look at the rig count numbers, they are falling precipitously.

Great. And last one from me, just to circle back to that '16 and '17 because that was the last time I think that you cut square footage. I guess maybe Jim what drove your decision to cut store growth this time around. And what would you need to see to reaccelerate growth?

I would say as we and many other retailers saw the onset of this pandemic, you do some scenario planning and you could play out some just terrible Draconian scenarios where the economy doesn't open and stores don't open and people don't shop. So we went into a complete lockdown on cash and capital and expense in the beginning part of April, the end of March, beginning of April. Presently, things are emerging a little bit, right. Presently, markets are reopening, everybody's watching the news closely to see what's happening to first, the health crisis and secondarily, the economy. But if the current trajectory continues, I would say, the outlook is getting healthier and healthier and we can reengage in store openings, in relatively short order. If you think about the real estate process we were looking at multiple deals and deals were somewhere along the pipeline prior to being signed leases, so we could just dust those real estate packages off and get those stores reopened. I think what we would have to see is a few months of some sustainable business, clear visibility and some sense of security that we won't see a reemergence of the COVID crisis awe get into the fall sort of driving everybody back into a cash conservation. So I would say, now we are absolutely taking a pretty conservative stand and more recently we're feeling a little bit more bullish. But we're certainly not yet prepared to become more aggressive until we see that more consistently.

Thanks Matt. Laura, are there other questions?

Our next question comes from the line of Oliver Chen. Please proceed with your question.

Hey, guys. It's Max for Oliver, thanks a lot for taking our question. So first, as we think about various options that you have in your tool kit to deal with the weakness in the oil markets. As we look ahead, how would you characterize more offensive versus defensive initiatives and then also as demand from those core shoppers is expected to be pressured what are top opportunities to grow your new shopper base? And then we have a follow-up question.

Okay. On the first one, relative to oil, defensively the playbook is relatively straightforward that we manage expenses very carefully in those markets and manage the labor very carefully. What we did last time as we choose the inventory assortment, particularly for the one customer that was typically looking for flame-resistant merchandise and we brought in less expensive options because generally that that worker, that American worker, that oil guy will go out and try to get a different job and still needs work here, but not necessarily flame-resistant work here. So we'll look at expenses from a labor perspective, we're looking at inventory levels. We'll look at the composition of our assortment. From an offense standpoint, we've over the last several years, we've really been developing our commercial accounts business. So we'll continue to try to source additional industrial accounts and grow those businesses. Five years or six years ago, we probably had two to three people in that organization. Now, we probably have 10 people in that organization. So that could help to ease the burden if the oil patch gets weaker. We've also been accumulating more customers and we've been pretty vociferous about the change in customer count on a same-store sales basis. So that will help. We have another segment that we're starting to nurture, the country segment so to speak, that is sort of an offshoot of our core Western guy, and that's another area for growth. So we'll continue to try to expand the pool of customers that we can address. One of the things we've seen, it's been more on the e-commerce channel is we've seen new customers being introduced to Boot Barn through our online business. So given the shift to online shopping, we've been much more present from a pay-per-click standpoint. And we've seen a pickup in customer acquisition online. So that may also help us continue to find growth areas. So I didn't put all those things together. We will manage through those like we did last time, I think we're better positioned than most of our competitors, particularly the mom and pop guys in this space. So we will look to be taking share from them.

Got it. And then can you just discussed early performance in learnings from curbside and is this a service that you expect to maintain once the environment normalizes? Thank you.

Sure. Well, necessity is the mother of invention, right. And I think many retailers have brought a lot of new capabilities to bear throughout this crisis period as we have. And it's certainly something that we will most likely continue going forward. We're curious to see how same-day delivery operates with us from the stores. That's something that we're really keen on getting up and operating and if it gains traction, we want it to be protected prior to getting into the holiday period, so we can extend our online shopping either even further closer to the holidays and not fall victim to the shipping window. So, right now I'd expect all of the new capabilities to continue forward. I would say that while we were able to get them launched quickly if all -- they all our operating extremely well with very few hiccups. It's still a relatively small part of our business today. And, but we will continue to push and market those services more and more, and it may be fun, a more familiar way for people to shop going forward. Laura?

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

Hi, thanks. Good afternoon, guys. I appreciate some of the color on the quarter-to-date trends. I'm curious if you could maybe just kind of fill in with a little bit more detail. Yes, certainly you guys are a stimulus check beneficiary but bulk of those direct deposit came in in mid-April, and yet it seems like at least your comp is still getting less bad here in the most recent week. So is it simply dynamic as States are opening up and you have stores in the States that you're seeing a more meaningful lift in sales as customers are coming back.

It's a very good question, Peter and we'll try to give you as honest an answer as we possibly can. Part of us want to feel encouraged by the sequential improvement in the business. And you're right on the timing of the stimulus checks, of course. On the other hand we are also cognizant of some of the realities out there, right. We happen to be a retailer that's operating and many retailers particularly malls are closed. So for every consumable -- consumer dollar out there, we might be getting preferential treatment today and as more and more retailers open we do worry that we will be splitting that up with more people. And we do have a -- and this is relatively minor in the grand scheme of things, but the last few days, the last week or so, we had a clearance sale going on that started earlier this year than it did last year. So that might be artificially driving sales. So again, I would just say that we are of course cautiously optimistic that the business continues to improve. We're also pragmatic enough to know that there is a number of other pretty strong forces at play and it's hard to isolate one from the other.

Okay. And then just pivoting maybe over to the competitive landscape, obviously it's intriguing that you guys are kind of the gorilla in the space. You compete against a lot of smaller ones, the two store retailers. Are you hearing about any closures at this point? Or conversely, are you even getting calls looking -- people who want to sell their business. Just curious that if the competitive landscape has shifted downward in a way that you might be aware of at this point.

Peter, we have heard and seen some competitors closing up or choosing not to reopen as a result. I wouldn't say we've seen a lot of that, but we have certainly seen that in some markets and my phone hasn't been ringing off the hook. But I do expect that as states start to open up and allow people to to assess their business that in fact people may be reaching out to us and talking to us as a result. So we'll see how that plays out, but it certainly seems like it could be a good opportunity for us.

Okay, great. And maybe one last one. You had said you had 50 stores that were closed, are those remaining closed or those are starting to open now?

So we had about 200 open to most of this COVID crisis. Having said that, I think as of today or yesterday, we had 242 of the 260 stores open. So about 18 of the 260 haven't reopened yet.

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

Yes, hi. Thank you. Maybe just a follow-up on some of the discussion you've had, but thinking back a few years, you saw maybe eight quarters or so give or take of some pretty significant comps pressure. There was a lot of different factors that played then, but how do you think about kind of the duration of the impact we're seeing today and even thinking differently about the parts of your business, work and then separately, maybe any thoughts on what will be needed to get this fashion side of things back?

I don't want to compare to last time. I do think we're a little bit more diversified. Our assortment is a little bit broader. So we do have some other areas to find growth and the other thing that we have somewhat of a luxury relative to 2015-2016 is we're in a much stronger position from a capital structure standpoint and liquidity standpoint. So one of the things that created nervousness last time as you well remember was the combination of slowing sales and an increasing leverage ratio. So that dynamic is nearly as concerning as it was back then. I also think we've improved as the company from a merchandising and marketing perspective using analytics to drive new customer acquisition and really trying to understand how we can maximize lifetime value of customers more and access new customer markets, right. So our segmentation is really the underpinning of how we go to market and fortunately this new split between a core Western customer and a more casual country customer is already well under way. And once we feel like it's appropriate to market heavily to that customer, we have some weapons in place to introduce more people to the Boot Barn brand. So I think when you pull all of that together, assuming a more normal environment, which of course is a pretty significant simplifying assumption, I think we can, want the softness in the oil patch to some degree. And sort of what we did last time to be honest, from the last time, we got the flattish comps and didn't really have any massively negative quarters for the last 10 years. So maybe we won't -- we won't be plus 10. But I do think we could still have a pretty decent business even in a difficult oil environment if we can get through some of these other challenges that we and the rest of the world are facing.

And do you think on that faster than lifestyle side, I mean how significant are music events, there were rodeo, things of that nature like do you think you need those types of events to come back for a meaningful portion as part of the business.

They definitely do drive the business in the local markets and those events happen. That said in the grand scheme of things, it's a relatively small piece of our business going after festival wear and concert but it's another headwind that we will face where rodeos, country music concerts, stagecoach, other festivals are being canceled. That's just another part of our business that it's going to have to find other outlets to sell the merchandise. So it's a good -- it's an excellent question and insightful question. And it is a bit concerning. I think the pressure that we are, we might see in oil patch would be a higher magnitude than the elimination of concerts and events.

Okay. That's really helpful. Maybe just the last one for me, maybe just want to understand that the gross margin or product margin mix impact from the near term prioritization of the work categories, just any any major mixed call outs that you can give us?

Sure. The overarching answer is unless there is dramatic shifts in the merchandise classification, a different composition of departmental selling doesn't massively change our merchandise margin mix. If there is -- if there is one small silver lining to the oil patch, flame-resistant work apparel happens to be a low margin business for us, by one of the lowest but that it's not a -- to be very difficult for one business to grow so much and another business to decline so much. The mix by department has a major impact on the merchandise margin. Having said that the composition that is meaningful is e-commerce versus stores. Our margin rate online is lower than in the stores for a variety of reasons, part of that is pricing particularly on Sheplers, part of that is exclusive brand penetration online is lower than exclusive brand penetration in the stores. And that is an area that is a bit more concerning where we'll mix out or composition out our margin rate down a bit. That said, if the, if the very recent trajectory of our stores business continues to build, which is a big if, it will help moderate that composition impact over time.

Our next question comes from the line of Dylan Carden from William Blair. Please proceed with your question.

Thanks very much. Yes, just curious with these events gone, maybe how you are reallocating some of those marketing dollars. It sounds like you had some remarks about maybe moving those online, I think I heard and then sort of the new customers that you're getting online, if that is the case, any way you can quantify kind of percentage wise or anything that might be helpful there.

Well, we have changed our marketing mix over the last couple of months pretty dramatically, right. Almost all of our marketing over the last few weeks has been in the form of digital mostly pay-per-click and a small amount of social. That said, as markets are starting to reopen and reemerge particularly in places like Texas where we're reverting back to a more typical Boot Barn media mix where we're using some very traditional marketing media to go after new customers like radio, perhaps on television and the goal was to continue to bring the lifestyle brand of Boot Barn to life, and get more trial from customers that perhaps haven't shopped with us in the past. In terms of the kind of quantify a number, the net new customers coming through the online channel. I think if you look at the sales growth being so outside, it's hard to say, how much of it is specifically new customers and how much of it is stores customers shifting over. Anecdotally though, we know only a portion of it is new stores, and we have a pretty decent handle on our stores customers through our loyalty program. And we know that some of them have shifted to e-comm, but it would, it would be surprising if the entire outsized growth in e-commerce is from stores customers and we do believe that much of it is from new customers. So it's hard to give you a hard figure there but it does absolutely feel like half of the increased business online are customers that weren't necessarily buying from us over the last year or two, definition for us of a new customer.

Got you. Thank you. And then just one follow-up. I take your point on the competition, but I'm just curious sort of in the back half of this year, if you do find yourself in a position where a lot of the mom and pop in particular locations are sort of going out of business are up for sale. I mean, I know you are buying some of these businesses for inventory cost anyway. Do you have toward the financial flexibility as you envision it from here to kind of act on that such so you might even see kind of an accelerated expansion in the 2021?

Yes, Dylan, it's Greg. We do have that flexibility, as I mentioned in the prepared remarks that our net debt leverage ratio is healthy 1.7 and so the credit markets are functioning well and we could access capital I believe pretty easily if these opportunities pop up.

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

Hey, guys, thanks. Jim, curious if you could share with us, what you're -- what you see, what you've been seeing on the competitive landscape in terms of how many of your competitors were able to keep stores open throughout this? And I'm sure that there may be some differences by market. Not sure if you can give any color there. What are you seeing in terms of the stores that are open that you would consider competitors from a discounting perspective? And what do you think that means for the next couple of quarters? And I think, I guess just bigger picture, just given you're seeing a surge in e-comm I think many people might be of view that e-comm will gain share a little bit more at a more accelerated rate over the next couple of quarters, if not years. Curious if any of this changes your long-term view about the right number of stores to have in the fleet just on a long-term basis. Thanks.

Okay, so let's unravel a couple other questions there. On the first piece, from a competitive standpoint many of the pure western and work businesses stayed open, the one comparison many of the Cavender stores stayed open, and they are a formidable competitor outside of Texas. Most of the Farm & Ranch stores stayed opened, notably Tractor Supply stayed opened who is perhaps a secondary while very large and very strong retailer, in our specific categories, kind of a secondary competitor. In terms of feeling pricing pressure within our industry, I think there'll be some, but that's actually not a major concern for us. We have the strongest brand, people tend to shop us because we are the national lifestyle retailer out there. We do feel a little bit that every other retailer when they reemerge will be marking down in clearing through spring goods. So every store in the mall that's been closed for eight weeks or 10 weeks is going to have to clear through inventory. And while we're fighting for our share in the market, there'll be a lot of companies out there, just on deep discounting. So within the industry, I think the pricing pressure will be moderated but within retail, I think the pricing pressure will build momentum over time as companies reopen. On the strength of the e-comm business versus stores business in the long-term store count, it's a little hard to reproject that number but our experience has been for countless years now that we can open up new stores in new markets have them payback in three years. Our stores channel continues to be more profitable than our e-commerce channel despite all the work we've done from EBIT profitability standpoint in e-comm. We have just opened some new stores in brand new markets that are even in this environment doing quite well. So it's -- this is the call that we kind of promise that we're not going to give guidance on, but it's, I think it's much too early to pull back on our long-term store count until we see how the next couple of quarters plays out, and see how shoppers behave. There is a thesis out there that says people have been in lockdown mode for so long that they're going to want to get out and shop and perhaps the store environment or perhaps the store environment connected to a digital experience is going to become even more important. So we'll stay tuned, but right now we still have some optimism about continuing to open 500 stores across the country and as visibility becomes more clear, we'll update you on that number.

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

Hey everybody. Thanks for taking my question. I was kind of, I know you said about 50 of your stores had to close at some point during the crisis. I know a lot of them have reopened. Is there any way that you can parse out performance in stores that had to close for a portion of time and how the volume has recovered once they reopen and perhaps relative to the stores that never had to close.

I guess you asked me if there's a bring back in demand. Right. Tom, we haven't really looked at that, and when I said 200 of roughly 250 were operating pretty much during the entire time, there was a period when all 47 California stores were closed, and so we were operating at 150 stores of the 250 or something like that. And it wasn't always a consistent number, sometimes the store would be closed, because they had trouble staffing the store perhaps because -- because an associate who is going out for a COVID test and we would close the store and clean the store thoroughly before reopening. So I couldn't tell you how many stores stayed open the entire time. But my sense is, there wasn't really a meaningful change in terms of whether the stores closed for five days or remained open the entire period. I do think when we were closed for six weeks or something like that because of local mandate perhaps in New Mexico for example that business came back a bit stronger, but again that's more about pent-up demand for six weeks.

Got it. Okay, that's helpful. I also wanted to ask from a modeling perspective, how should we think about inventory levels. I'm assuming that at the end of Q1, your inventory growth would probably be a little bit higher than you would like. Just if there is any help you can give around inventory maybe Q1 as the year progresses that would be helpful.

So our merchants did a phenomenal job of I'll say getting out of receipts as quickly as they could, when we saw this happening. Having said that, we had exclusive brand product that was on the water and so it was received in the April, and we had purchase orders written to land from branded vendors that hit in April. So we couldn't effect April receipts in a meaningful way. So we received good NIM in April like business was normal-ish, but they were able to impact May forward and we've done a pretty good job of rationalizing receipts. Our inventory is in a healthy position. So we're going to be able to fuel the business off the inventory we have on hand, with the exception of things like work boots where we buy into a replenishment model and probably be bringing in receipts from there. But in general, you should expect to see our inventory balance continue to walk down from the level it was added to.

Got it. Okay and just last one, Greg, is there any help or color you can give us around operating expenses and how we should think of that either in the near term or for the full year?

Tom, I really can't give you anything enough that will help you model. I mean, we've done things to reduce discretionary spend, and frankly most of the spend, we are viewing is discretionary at this point, even things that we've been committed to in the past are on the table for review. We've got folks furloughed at this point, we are operating on lower hours of operation in stores and so we've got, what I'll call base minimum coverage, which is good from a productivity perspective and it does save us some payroll costs in the stores. But I can't give you anything specific because frankly our decisions and how we are doing some of these things changes day to day. Jim mentioned that we kind of went silent in marketing with the exception of pay-per-click. And we typically spend about 3% of store retail sales on marketing. So we spent virtually nothing about in April, and I think it would be very thoughtful as we move forward. But again, can't really give you a number or pointing a direction.

Our next question comes from the line of John Morris with DA Davidson. Please proceed with your question.

Hi, thank you. Happy to hear that everybody's safe and healthy, and wanted to get a little bit more color on the challenges of the supply chain, you talked about them a little bit here. But I'm wondering on a go-forward basis, maybe talk a little bit about, enumerate a little bit better, give us a little bit better color on where those challenges are? And at what point would you be getting back to kind of a more normal I guess pipeline as things kind of roll through, so that or is it something that you see extending quite a bit into the future? So I'm also trying to kind of get a feel for how long we should expect some of these uncontrollables to continue?

John, it's Greg. And I think what you're saying is, the pullback on exclusive brands that where we've -- what we've uncommitted if you will or decided to not have a commitment for six months out. And I would expect that we will continue to operate turning to maintain maximum flexibility until we see some consistency and stabilization in the business. There's things that will produce on an exclusive brand front that are basics like our men's Cody James, denim products that they will continue to buy into as needed. But buying Christmas at this point for exclusive brands, it feels like a stretch for us, it feels like we're tying up some capital and we don't know what's going to happen as it relates to the COVID-19. So in that regard, if the business accelerates and we can't buy into that exclusive brand product, because of the timeline, we will buy-in from a branded vendor to support that sales. But we're trying not to lose sales but maintain maximum flexibility. Does that answer your question?

Our next question comes from the line of Sam Poser with Susquehanna. You may proceed with your question.

Hi. Hi guys, this is Will on for Sam. So I just wanted to touch on inventory. How -- you guys discussed you're pivoting from fashion product toward more functional and work product, what is your inventory composition look now fashion versus functional?

Yes. And Greg addressed this a little bit. The merchants really did a nice job of managing receipts down throughout the last couple of months, whereby we've actually made some progress on our average inventory on a comp store basis. In other words it is better than or less than the 9.3% that was at the end of the quarter. So it's pretty good news, particularly given that backdrop. The other thing I would say is pretty good news is and we've mentioned this in the past where we've been on the heavier side tends to be on categories that have much more limited markdown exposure. We didn't give crystal clear color on this call. But we did last time, saying work apparel tends to be heavier. That continues to be true, it's probably the single category that is -- that has had the most growth on a year-over-year basis. And while you might see some softness in flame-resistant work apparel going forward in the oil patch, that merchandise has extremely long longevity, right, there is no fashion risk, or no -- there is very, very limited markdown risk or fashion risk in our work apparel business regardless of a disconnect between sales trend and inventory build. So, the one area that we do want to work through some clearance merchandise is on ladies apparel and less so on ladies' boots. And while it will, it will drive some markdowns, slightly more outsized than we typically have been in the past. As you know, we've been growing our merchandise margin I think since you guys picked up coverage with very little markdown exposure. There'll be some now as we clear through mostly ladies apparel. I don't think it will be massively outsized that we would have called it out more explicitly and if it was really outside, we would have it reserve for in our fourth quarter financials. So from a composition standpoint, I think that's working a little bit in our favor where the area that we have higher growth in inventory tends to be an even lower markdown rates.

Got you. Thanks. And just one follow-up, are you -- I mean how backed up for you guys are the ports and are you guys taking in new product at this point?

Yes so we went from shut off all the faucets eight weeks ago and let's preserve cash at all costs to OK things are starting to ease up and market is starting to open and our business is getting sequentially better. Let's turn on replenishment for staple and functional products. Let's look at forward receipts for things like men's and ladies basic denim and certainly work boots as they continue to sell well. So the -- what -- we can turn the supply chain back on. I mean, have been doing that opportunistically and if things continue to march along positively, we will open the aperture a bit more and continue to bring in more receipts. So the stores will feel, I think we'll continue to feel fresh enough as we go forward. And again, we're managing it week to week. And if things turn one way or the other we will react accordingly.

Our next question comes from the line of Rick Nelson with Stephens. Please proceed with your question.

Thanks a lot. Good afternoon. So e-commerce growth rate has really accelerated here in April, and then into May. If you could speak to any stress that that's put on the organization, and your shift now to in-store fulfillment, the rationale behind that. Is that a cost, say the speed of delivery issue or inventory is residing in the stores and you want to push some of that out.

Very good question. I would separate to comment though while you could connect them. It really wasn't cause and effect, I give a lot of credit to the e-commerce team and certainly the e-commerce supply chain and performance center in Wichita that the business overnight essentially doubled. And when it doubled, we had actually already furloughed some people in that warehouse or in that fulfillment center. So, the head of that part of our business called people off of furlough, brought them back in to manage the increased throughput and has been managing really well. We hold ourselves to a pretty high standard of getting mainly 8% of our orders roughly out the same day that they come in and that we haven't really relaxed that standard, but for a day or two here or there. So the e-commerce business has been able to respond extremely quickly and the great agility to the increased volume. Changing back to the -- the second part of your question is you are utilizing the stores, that's more a reaction to a potential change in shopping behavior going forward, right. If the world changes how they shop day to day or how they shop for gifts during holiday. We want to have more ammunition at our disposal to drive the business. And our biggest competitive advantage is our stores that we can give a consumer the ability to buy product and have it delivered to their house from the store or picked up by themselves from the store, it makes us more competitive than some pure play e-commerce players out there. And if you think about Boot Barn and many retailers in apparel and footwear the holiday periods are going to be extremely important and we want to make sure that we can remain as competitive as possible with every potential way to service our customers either the way they want to buy or the way they want to have that product fulfilled. So that's really what -- that's the biggest reason why we’re trying to get to using our stores as an extension of our Wichita fulfillment center. And yeah and just to give you a scale mainly 8%-ish of our business is going through our online channel is still being fulfilled by Wichita or perhaps Wichita and drop ships from vendors and not from our stores. So it's still a small piece of our business, but we want to use that as opposed you could call it a strategic option as we get into the holiday period.

Okay that makes sense. Thanks for that color. With the discussions with the landlord and your deferral of rents, how those conversations are going and what sort of cost say is involved with that?

Rick, as you might expect, I really can't talk about that in any great detail given it's a fluid negotiation. Needless to say we've explained to the landlords how adversely affected our business loss as a result of COVID in spite of the fact that we remained open, our stores business was incredibly challenged in April for example where we were down 64 on a comp basis. So I think that they've been, they've listened, they understand the position we're in and we continue to work with them on a deferral.

Our next question comes from the line of Jeremy Hamblin with Craig-Hallum. Please proceed with your question.

Thanks for the color, guys. I wanted to just first ask about marketing events have changed and that schedule is going to change the dollars and so forth. You mentioned that you've also changed some of the promotions. You brought forward, I think a little sooner than normal clearance event. As you look forward to the summer season last year, you removed the anniversary sale that you had run for I think like 20 years. Is that something that you would consider given the situation bringing back or other types of events along those lines that could be a possibility?

Yes, it's a very good question. We've worked pretty hard over the last three years to take a business that was already pretty low in the promotional scale and meaning, we saw most of our product at full price. And making it even more full price selling and I don't think even a pandemic of the scale that we're facing into and the disruption to the business at the scale we are facing could really change that for us. What we found for our product given the functional nature of it is people tend to come at Boot Barn and say we have the lifestyle brand in the industry. We are going to typically be in stock and product that they need and want in their side, and when we discount a big section of the store, we don't really see unit velocity pick up in any meaningful way to sort of pay for that sale and we certainly don't want anniversary the next year and the third year. From a clearance perspective coming back to your question around the timing. I think there are two reasons why we did that. One was, we have some clearance product, particularly on the ladies side that we wanted to work through but more than that we -- it was somewhat of a strategic opportunity for us to take where if we could get out and be a little bit more promotional before lots of other retailers started to open, we will take that opportunity, and as customers were shopping and if they were looking for sale we wanted to sort of beat competitors, if you will, to the time or beat even a mall retailer that will undoubtedly have to clear some goods. And we do want to just be in the play with everybody else. So part of it, the timing shift was a competitive move as much as it was, a necessary move to move on -- or move out excess inventory. So just kind of concluding that those comments, I don't expect us to become highly promotional, I just don't view that as a winning hand in at least in our industry and probably most retail stores.

Thanks. That's great discipline in a tough environment. Last question here, there's going to be some obvious fallout from this crisis and trade tensions continue to be a potential source of concern. As you think about sourcing arrangements, whether it's your own on private label goods or some of your key vendors, is there any movement in terms of potentially altering where your sourcing arrangements are coming from moving some of that out of China.

I'd say yes and no. At Boot Barn and perhaps many other retailers like us, the tariff saber rattling created a lot of that flexibility over the last year or so. So we have diversified our supply chain quite a bit based on that. And you're right to call out that that's just another area of risk going forward for us. So we are continuing to like everybody else I suppose monitor the different political actions that are happening out there for different countries that we are sourcing from. And we've -- we have brought China down as a percentage of our imported goods. But it's still, it's still a pretty good chunk and it will probably remain so until something really meaningful happen. So I would say we're watching it carefully but as we sit here today, one of our most important country going forward either for ourselves or for our third-party vendors is going to be China. So I think it's a fair question. And I think we are on top of it. But it's -- we'll have to just wait and see.

Ladies and gentlemen, we have reached the end of the question-and-answer session. I would now like to turn the call back over to Mr. Jim Conroy for closing remarks.

Well, I appreciate everybody spending so much time with us today. I know it's a long call. But thank you for joining and we look forward to speaking with you all on our first quarter earnings call. Take care.

This concludes today’s conference call. You may now all disconnect your lines, and have a great day.