Good day, everyone, and welcome to the Boot Barn Holdings Fourth Quarter Fiscal Year 2022 Earnings Call. As a reminder, this call has been recorded. Now I'd like to turn the conference over to your host, Mr. Mark Dedovesh, Vice President, Financial Planning. Please go ahead, sir.

Thank you. Good afternoon, everyone. Thank you for joining us today to discuss Boot Barn's fourth quarter and fiscal 2022 earnings results. With me on today's call are Jim Conroy, President and Chief Executive Officer; Greg Hackman, Executive Vice President and Chief Operating Officer; and Jim Watkins, Chief Financial Officer. A copy of today's press release along with a supplemental financial presentation 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 and fiscal 2022 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, Mark, and good afternoon. Thank you, everyone, for joining us on today's call. On this call, I'll review our fourth quarter and fiscal 2020 results, discuss the continued progress we have made across each of our strategic initiatives and provide an update on current business. In addition, I will be sharing the results of a recent study we have completed that has led us to update our estimate of the size of our total addressable market and to establish a new long-term store count potential. Following my remarks, Jim Watkin who will review our financial performance in more detail, and then we will open the call up for questions. On this call, we will return to our typical cadence of discussing our financial results on a one year rather than two-year basis. Fiscal 2022 is a record-setting year for Boot Barn, with results exceeding our expectations across the board. Consolidated same-store sales increased a staggering 54%, cycling a positive 3% comp in the prior year. This consolidated same-store sales growth was comprised of an increase in retail store same-store sales of 57% and e-commerce sales of 39%. Our sales growth throughout the year was consistently strong, driving our business far beyond the $1 billion mark for the first time to $1.5 billion. Remarkably, all 52 weeks of fiscal 2022 grew in excess of 55% on a two-year basis demonstrating the consistency of our performance. Merchandise margin increased 270 basis points compared to the prior year, fueled primarily by greater full price selling and growth in our exclusive brand penetration. The combination of top line strength, merchandise margin growth and expense leverage led to a more than tripling of our earnings per share to $6.33 and an EBIT margin rate of 17.4%. I would like to take a brief…

Thank you, Jim. As a reminder, I will be discussing our financial results with comparisons to our prior year period. In the fourth quarter, net sales increased 48% to $383 million. Sales growth was driven by a 33% increase in consolidated same-store sales and sales from new stores added during the past 12 months. Gross profit increased 61% to $149 million or 38.8% of sales compared to gross profit of $92 million or 35.7% of sales in the prior year period. The 310 basis point increase in gross profit rate resulted from 190 basis points of leverage in buying and occupancy costs and a 120 basis point increase in merchandise margin rate. The merchandise margin rate increase was primarily a result of better full price selling and growth in exclusive brand penetration, partially offset by a 60 basis point headwind from higher freight expense. Operating expense for the quarter was $86 million or 22.6% of sales compared to $60 million or 23% of sales in the prior year period. Operating expense increased, primarily as a result of higher store payroll, store overhead costs and marketing expense. Operating expenses as a percentage of sales decreased by 40 basis points, primarily as a result of expense leverage on higher sales. We are pleased with the expense leverage we saw in the quarter as we cycled our fourth quarter business last year when we saw a sharp acceleration in sales volume toward the end of the quarter, which drove outsized operating expense leverage. It is encouraging that we could anniversary that nuance and offset other inflationary expense pressures to drive leverage. Income from operations was $62 million or 16.3% of sales in the quarter, expanding 360 basis points compared to $33 million or 12.7% of sales in the prior year period. Net income…

Thank you, Jim. Fiscal 2022 was an incredible year for Boot Barn. We continue to build on each of our strategic initiatives, further strengthening the brand and expanding our customer reach. I would like to take one more opportunity to express my heartfelt gratitude to the entire Boot Barn team, in the field distribution centers and the store support center. Each and every one of you has stepped up to every challenge and as a team you just delivered one truly spectacular year. I look forward to what fiscal 2023, brings and what we will be able to accomplish together. Now I would like to open the call to take your questions. Jacob?

Thank you [Operator Instructions] The first question comes from Matthew Boss with JPMorgan. Please go ahead sir.

Thanks and congrats on a great quarter?

Thanks Matthew.

So Jim, we've talked about consistency, I think, for the past four quarters, but to me, your 12% 1Q-to-date comp now points to sequential acceleration. If we look at it on a three-year CAGR relative to the fourth quarter, could you speak to the drivers of this acceleration that you're seeing as we think about maybe the doubling of the TAM you cited, oil and gas market trends or event reopening opportunities that you're seeing today?

Sure, you're right. If you were to pull apart the business on a three-year basis, Q3 into Q4 got better, Q4 into Q1 is also better once again, and amazingly, May is better than April. In terms of what's driving that - I mean, first, I'd like to start with, many people thought, including some of us occasionally around the table internally, that we weren't going to be able to cycle the business that really took a step function change up essentially a year ago, right, mid-March of last year. So we're thrilled to be able to report that we've been able to grow on top of that. I would attribute it to sort of the proverbial flywheel, right. We've extended our reach to more customers. We've broadened our assortment. We've contemporized the brand to make it more accessible to people that are outside our core western customer. And as we've done each part of that coupled with sort of a lot of operational execution pieces, right. So we've been aggressive at securing inventory. We've managed our supply chain extremely well. We've been able to hire in the stores and retain people extremely well. And when you put all that together, it's a combination of maybe a little bit of a tailwind from some macro pieces. But honestly, and we say this with great humility and my hats off to the team that's executing, but a good portion of it is just sort of very strong execution across sort of the basic tenets of retail.

And then maybe a follow-up on the bottom line, so Jim at the IPO, I think you cited low to mid-single-digit same-store sales, 10% unit growth with a 20% plus EPS growth story. So on an underlying basis, now moving forward, I guess, has anything changed with top line flow through in the model or has the algorithm lost any drivers as you've scaled the business?

Sure, so - you are right, and that has been our long-term algorithm. We are - and you have led us to this in the past, while we've tried to guide investors to a 20% EPS growth. Since we've been public, we've been growing even more than that, right. We've grown almost double that or more than double that by 40-something percent EPS growth since the time of our IPO. So this upcoming year, given that we've had such a step function performance in fiscal 2022. We're certainly not promising either 20% or 40% EPS growth for this next fiscal year, fiscal 2023. From that point forward, though, I think the long-term algorithm should be viewed as our ongoing view into EPS growth. I would imagine it's going to once again prove conservative. If you think about what we've been able to do over the last few years and how we're positioned today. We're likely to grow faster than 10% new units, so I'd probably say 13% new units. We often anchor back to 250 or 300 basis points of exclusive brand penetration, but we've over-performed that. The historical algorithm is low to mid-single-digit comps, and we've been plus 11% for 11 years. So if you look at the three factors that when taken together drive a 20% EPS growth. I think there's a decent likelihood that going forward, we'll be able to achieve that or overachieve it again. So right now, we're going to focus on delivering a strong fiscal 2023. And then I guess, on the call, a year from today, we'll give you a better answer for the go-forward algorithm.

Look forward to it, great work and that's the block.

Thanks Matt.

Thank you. The next question comes from Max Rakhlenko with Cowen & Company. Please go ahead.

Great, thanks a lot and congrats on a really strong quarter. So with another quarter under your belt, how would you assess your ability to lock in the new shoppers that you've gained over the past 12 to 18 months? How confident are you that these shoppers will remain boot shoppers? And then if there was a reason why you would potentially lose them, what do you think that, that could be?

Sure, so we've had enough time now to see more than 12 months of behavior from some of the new shoppers that have been attracted into the Boot Barn brand. And while, of course, we can't completely predict the future, what we can say looking back over the last 12 or 16 months is that those customers are shopping with us with the same frequency of our legacy customers. So they're shopping roughly twice a year on average. Their basket is roughly in line with our legacy customer at a little over $110 per trip. And in terms of how we could potentially lose them going forward, look I think there's a host of ways that they could leave the Boot Barn brand. They could be bid away by a competitor or there could be an online threat with a company that is competing on price with maybe less of a focus on profitability. But there's also a more bullish viewpoint, which is, we're just getting started in this new customer segment. There'll be word-of-mouth expansion within this new customer segment. We'll start to gain not only more customers but a bigger share of their wallet going forward and so on and so forth. So we announced this initiative to broaden the sort of definition of Boot Barn kind of concurrent unfortunately, with the outset of COVID in the beginning of calendar 2020. And we've had a couple of years of learning, and we're encouraged by those results, but we're still in the early innings of expanding that customer base, learning more and more what makes them tick and what types of product to bring in the store and how to reach them from a marketing perspective, et cetera. So I actually view it from the perspective of, this is a great new market opportunity that we're just beginning to tap into. Like our core customer, there's not a whole host of really strong competition typically being serviced by mom-and-pop operators. And we're going to do what we normally do, which is just methodically continue to expand within that part of this new customer base.

Got it, it's very helpful. And then with doubling of the TAM, how does that impact your outlook for what your own brands can do and contribute? Is there an opportunity to potentially lean more heavily, especially given all the success that they've had over the past year plus? Just any of the new verticals that you're looking to get into are they all covered by exclusive brands now or are there additional opportunities down the road? Thanks and best regards.

So I would separate the expanded TAM a little bit from the potential opportunity for exclusive brands. And not to nitpick the words at all, it is a fair question. We're very excited about the opportunity to announce a larger market size that we can go after. We know we can open successful new stores. We've been doing that for years and really have been able to achieve that in the most recent year. So a big part of our future growth is to continue to open 40 or 45 or 50 stores a year going forward. And if you do that for a few years, four years or so, that could be another $1 billion in sales. On the exclusive brand piece, we are -- we feel reasonably well covered. If we look at our 10 different brands we could easily position them on sort of a brand map in terms of customer segment, western versus work versus country, male versus female, boots versus apparel, et cetera, and I think we feel reasonably well covered. There might be opportunities for some additional brands going forward. And I guess I would just end with, when we look at the new brands that have been added, along with the brands that we've had up and running for a few years now, we're really pleased with their performance. We are calling out 300 basis points of additional exclusive brand expansion in this fiscal year. That's essentially what we called out last year. But last year, we over-performed it quite a bit. And I think there's probably opportunity for us to over-achieve that exclusive brand penetration this year as well. All of that said, we'll still be roughly one-third of our business will be exclusive brands and the other two-thirds of our business will be to our third-party branded partners who are extraordinarily important as we continue to grow our business. And many of them have really stepped up to help us fuel the outsized sales trend that we've been experiencing over the last year plus. So a great deal of gratitude goes out to those - many of those vendor partners as well. Jacob?

Thank you. The next question comes from Steven Zaccone with Citi. Please go ahead.

Great, good afternoon guys thanks for taking my question. Congrats on another strong quarter. I wanted to ask on the margin side of the business. So maybe Jim, could you talk a little bit more about the outlook for gross versus SG&A within the first quarter EBIT margin guidance? And then for the full year, could you just elaborate a little bit more on the gross margin outlook? I saw in the slide, it looks like 130 basis points of freight deleverage. So maybe just talk about that in a bit more detail that would be helpful? Thank you.

Sure, so Steve, for the first quarter, just talking about the EBIT rate - and I'll just walk through the P&L, top to bottom. But as a reminder last year, we got a significant amount of leverage or EBIT at 17.5% during the quarter as our sales accelerated. This year, we've developed our expense budget contemplating a more modest sales and increase in the first quarter. And so, we expect the EBIT rate to normalize a bit as you see in the guide that we've got there at 12.8% EBIT. So the first of those, on the freight, it's -- what we've seen in the freight is, it's been elevated during the last couple of quarters. And from an accounting standpoint, we capitalize those freight charges and amortize them over a six-month period. And so based on what we're - we've been seeing, we're expecting 200 basis points of headwind in freight during the first quarter, which is above our 130 basis point guide for the full year as far as freight headwind goes. So that will create a little bit of pressure. And as we said on our last call, we've significantly increased wages for - in the fall, for our employees and our distribution center. And these wages in addition to some occupancy deleverage and the timing of new stores will result in some buying and occupancy deleverage in the first quarter. From the SG&A standpoint, as we've talked about, we expect to see deleverage in store, labor and marketing as we normalize and plan our labor and marketing in line with our sales plan for the quarter there. And then finally, from a stores on a corporate overhead standpoint, there's a little bit of pressure there as things, such as health insurance and supplies and consumables and…

Great that's very helpful. Thanks for that detail. I had a follow-up on Matt's question earlier, just thinking about the longer-term operating margin path for the company because I think the slides referenced fiscal 2023, this 15% level as the new baseline for the business, the step down from where you were last year, but explainable. I guess as you think about going forward beyond 2023, is there opportunity for the margin to continue to expand? Do you think there's potential to get back to the 17% level you saw?

Absolutely, absolutely we expect that to continue to build off of this year. And what that looks like as we move into fiscal 2024, it's hard to say at this point, but we can't say that at some point, the freight headwinds of 130 basis points will start to dissipate for returning our favor as well as getting continued expense leverage from the SG&A line. And then as we continue to open these new stores and we get the additional benefit of occupancy leverage going forward and just general expense leverage, we continue to expect to see some EBIT growth and getting back to where we were with last year and beyond, hopefully.

Very helpful thanks guys.

Thanks Steve.

Thank you.

Thank you. The next question comes from Peter Keith with Piper Sandler. Please go ahead.

Hey thanks everyone, great results. Just looking forward and maybe looking back first, you guys have long cited that - a functional use retailer was about 70% of your sales on functional use products. That's really limited gross margin volatility and markdown risk and pretty steady results? As you've moved down with the TAM to this increase in this country lifestyle segment, and maybe there's a little bit of a western trend going on right now, do you think the business steps down from a functional use percentage? And if so, would that perhaps increase some of the markdown volatility?

It's a great question, Peter. I guess the candid answer is yes, but slightly, right. And I would bring everybody back to - when we launched Idle Wind by Miranda Lambert a few years ago. And she and that brand continue to perform well, and they're just fabulous partners for us. But when we launched that in the fall of 2018, we moved straight into a pretty strong fashion sensibility with that particular brand. And despite launching that and then growing it and then hitting the pandemic, we still have really never had any significant markdown callout, despite being more penetrated in fashion on the ladies side with Idle Wind and having to work through at COVID-19. I think the worst we had was we - as COVID was emerging in our first quarter of fiscal 2021, we had 20 or 30 basis points of merchandise margin erosion. But - and that's kind of like the worst of all worlds, the perfect storm, if you will. As we - coming back to your question, more specifically yes, we're going after customers that don't all need the product for purely functional use. However, much of the product is still basics oriented, right. It's denim, woven shirts, t-shirts, still cowboy boots or footwear of some sort. And maybe they're not wearing them to work on a farmer or a ranch or to work on a construction site or an oil and gas industry, but it's still fairly basic and functional in nature. And we're not betting on the next fashion cycle or fashion season or whatever. So again, in the spirit of full transparency, it's slightly less functional than it was when we were first introduced to you back when we were going public. But I don't think we're sticking our neck out and taking undue risk with the expansion into these other customer segments.

Okay great. And then certainly, the 900 store target is impressive to sit here and still trip your store base from where you stand today. The new markets being half of that upside opportunity could you talk a little bit more about where you see big new market opportunity? You talked about the Northeast for a long time. Is that one that you think is really starting to open up for you or are there other geographies that are becoming a bigger opportunity?

Peter, it's Greg. This current year, as we think about the 40 stores, we'll open about fourth of those in the West region, primarily California. We'll open about fourth of them in the South region, which is primarily Texas. And then we'll open about a fourth in the Northeast, so New York, New Jersey, Connecticut, and roughly a fourth in what I would describe as the Mid-Atlantic states, Pennsylvania, Maryland, Virginia. And we've been opening stores in that area for the last couple of years. We've got six stores in Pennsylvania, four in Virginia and three in Ohio. So I'd say about half will be existing markets where we continue to fill out California and Texas and the fourth would be again on the Eastern seaboard.

Okay very helpful. Thanks so much guys.

Thank you.

Thank you. The next question comes from Jonathan Komp with Baird. Please go ahead.

Yes thank you good afternoon I want to follow-up on the sales outlook. I know you've guided with quite a bit of precision. So I might as well ask when you look at - first, sort of the first quarter here beyond the first six weeks, it looks like you're embedding high single-digit same-store sales, even though May is running above that and then more like 3% to 4% for the balance of the year? So can you maybe just comment more on what's feeding into that guidance? And how do you think about the economic sensitivity of your business mix today since it's shifted pretty meaningfully in the last few years?

Yes, Jon. So for the sales outlook, we pinpointed to the guidance that was more of a precise number than what we used to do. What we wanted to do this year, given some of the nuance of the level setting of the business and to give you all the pieces and components and really what it was with our best estimate and how we're looking at the business, how we're planning the inventory and the labor in the sales for the year and the earnings, and we'll provide you updates on that as we carry on through the year. As far as the way we're thinking about the business, Q1 and Q2, we have more visibility into it. And so, we've planned sales to be more front half weighted as far as sales. And so yes, you are right, we're tracking at a plus 12%. We've guided plus 10%, which would put the back half of the quarter at 8% or so, and then the rest of the year would come in below that. I think in Q2, we're planning it to be strong, Q3 and Q4, also positive, but maybe not as strong. I think as far as modeling the quarters, what I would do is really look at how we modeled - or how we came in last year - sales as a percent of the year by quarter, and that's how we're thinking about the business and then factoring in Q4 with - which is normally elevated above Q1 and Q2 because of Texas rodeos and then added the 53rd week in there, you're going to get a higher sales dollar volume in Q4. So that's how we're thinking about the sales cadence for the year.

And any thoughts on sort of the economic sensitivity of your business today?

Jon, what do you mean by that? Meaning as macro pressures in the U.S. or inflation, that type of sensitivity to those types of things?

Yes, certainly. And I'd be curious if you see more risk of tailwinds or headwinds. I know certainly, market participants are worried about headwinds forming in the future. So just curious how you think about some of those factors for your business?

Sure fair question. I think a lot of people are worried about the impact of inflation on customer spending, will we see - will we be slipping into a recession, et cetera, et cetera. Frankly, we're probably facing into some of that right now. I mean there's some portion of our customer base - coming back to your prior question that really relies on Boot Barn for functional product. Most of our work boot and those apparel business, of course, much of our men's western product is functional in nature as well, a good portion of ladies western is functional. So that customer is - tends to be pretty solid. But with that said, our median household income for our customer group is about $75,000. And if there's inflationary pressure that other retailers are facing, we're probably facing it now as well. The challenge that we always try to accept is, how do we grow despite those pressures? And as they unfold in front of us throughout this year, we'll have to continue to innovate and find ways to get additional growth. But right now, we're feeling very strong momentum early on in this fiscal year, coming off of just a kind of once in a lifetime year. And we're going to continue to try to reach out, get more customers, extend the brand's reach, expand the share of wallet with each of those customers. And I think the outlook for us continuing to have sales growth going forward is still pretty strong.

Yes, that's really helpful, and you've done a great job with that so far. And maybe one other question just on the operating margin. I'm asking maybe differently than what's brought up in on some of the earlier questions. But I know in the past, you've talked about directionally more of a 12% to 14% operating margin aspiration and now you're above that and talking about that new guidepost that is expected to stay above that? So could you maybe just review especially on the merchandise margin, some of the structural changes and what you see as sustainable based on what you've driven so far? And any other factors that are giving you confidence to be above that sort of 14% mark on the operating margin?

Yes so the - as far as the merchandise margin rate goes, we tried to break out something -- a little differently this quarter or this year that we've done in the past, which is putting the product margin out there. And that was really to illustrate that we've seen really nice expansion on the product margin side of things, and that's really been driven by our exclusive brand penetration growth, and that's something that we're not expecting to give back as well as the full price selling. Reducing promotions has been something that we've chipped away out over the past several years. And then more recently, the in-store fulfillment that we've talked about a little bit more last quarter, where the online shopper is able to have full visibility of what's available in our stores. And so, what we saw online is with more exclusive brand product available to our online shoppers that penetration has gone from rough numbers, 10% to 20%, which has really helped our online margin. And looking forward, we see that also as an opportunity with the in-store fulfillment to use that - the eyeballs of the online customer, if you will, to move some of the clearance items where we may have a broken size in one store rather than put that - rather have a deeper markdown in the store, we can sell that, hopefully, a little bit earlier. And early reads on this have shown that we are able to sell that with a lower markdown. And so I think from a merchandise margin standpoint, we're excited about the opportunities we have as we look forward and continue to grow our exclusive brand business and find ways to increase the product margin there.

That's great appreciate all the color, thanks again

Thanks Jon.

Thank you. The next question comes from Corey Tarlowe with Jefferies. Please go ahead.

Hi thanks taking my questions. As it relates to the new 900 long-term store target and 13% new unit growth, what key segments of the business have you invested in to be able to sustainably support this opportunity and level of store growth ahead?

Sure. If you're speaking to the organization from a functional standpoint, we've certainly invested in our real estate and construction department. We've added another deal maker on the east coast. We bolstered the construction group a bit. We have more construction project managers. We've also done some things within the store ops or field organization to really professionalize our new store opening, new associate training programs and processes, if you will. Historically, we were - we would borrow people from one part of the country and send them to a different part of a country and open up stores. We'll always have a little bit of that in our D&A. But now we're trying to isolate some folks that are more heavily focused on new store openings and training. I can tell you, we've been really happy with our ability, to bring people from one part of the country to another, to add people from outside the organization and get them up to speed on the Boot Barn culture and our way of operating the business. The last thing we did structurally, which I think will also help sort of simplify the problem, so to speak, is we used to run with three different regions. And for years now, we have spoken to you all about the north region, the south region and the west region, and you might ask the obvious question of where is the east region? Well, we just recently promoted a woman, Kim Letourneau, to our East Region Director. She's been one of our most solid district managers. She lives in the east already. She understands that market already, and she'll be taking over that "1/4 of the business." It will be slightly less than 1/4 of the revenue for a while. So with the additional region comes some additional HR support, additional loss prevention support, et cetera. So there's a mini team that goes along with that. That said, we feel great about our ability to bring on new stores. We feel great about the pipeline for new stores. We've opened 10 or 11 stores every quarter now for the last few quarters. If you include this one, we're on track for that. So one of the "easiest parts of our strategy for growth is to just continue to roll out a store concept that seems to be working extremely well and has proven now to be well received in many parts of the country, including those that aren't geographically western. So it's exciting. And so that, I think, is perhaps the best way to answer your question.

That's great. And then if I recall correctly, you've recently introduced 4 new exclusive brands. Are there any early reads that you can share with us today with regard to how those are ramping?

Sure, sure. We're very pleased with each of them. So BROTHERS AND SONS, CLEO & WOLF, BLUE RANCHWEAR and Rank 45 are the 4 new brands. 2 of them are targeting sort of the country lifestyle customer, that's clear on WOLF and BROTHERS AND SONS on the ladies side and the men side, respectively. And then the other 2 are different facets of the western customer. One that we're really excited about is Rank 45. Rank45 is a core western customer by a bit more younger, more modern feeling, modern fitting than some of our historical product going after that same customer. So all four of those brands are in the process of ramping if you walk into our stores now, you'd see merchandise assortments and tables presenting those goods sort of first and foremost in the store. Some categories are still trickling in, so we're still waiting for some denim in some of those brands and for some of the boot assortment to be expanded, but the early reads are pretty positive.

That's great, thank you very much.

Thanks Corey.

Thank you. The next question comes from Sam Poser with Williams Trading. Please go ahead.

Thank you, thanks for taking my questions. I've got a couple good afternoon gentlemen. One, where are - did this year change your sourcing. You had 50% of your goods being made in China, and that I think it was 35% of the goods being made in the western hemisphere and then the rest of other places. What does it look like last year? And what's it going to look like this year?

We're roughly in line for all three years. So China tends to be half of our business. You are right about the 35% that's split between Mexico and the U.S. and a few other smaller countries. But right now, that's -- our plan is to continue to use many of the vendors that we've been sourcing from, both third-party and exclusive brands, and the split will remain roughly in line.

And does that mirror your exclusive brand business, especially in western footwear. I know in the work footwear, the pure work, it's -- you got a lot out of China, but...?

Yes, so our exclusive brands and our branded vendor partners are pretty similar in terms of where we source from. The western footwear, the leather sold, western boots are made primarily in Mexico.

Got you. And then within everything you're doing, do you have any M&A? Or are you considering any M&A beyond rolling up a few other smaller western players? Do you have any other M&A on the horizon? Or are you looking -- are you potentially looking at anything?

Yes, right now, we have so much opportunity to just continue the growth in our store base organically. That's our primary focus. We've made acquisitions in the past. Of course, if something were to present itself, we would take a look at it. But it would have to be relatively compelling for us, given how much success we've been having, just opening up new stores.

Got you, thanks very much continued success.

Thanks Sam.

Thank you. The next question comes from Jeremy Hamblin with Craig-Hallum Capital Group. Please go ahead.

Thanks and congrats on the outstanding performance, and thank you for the increased transparency and additional details. I wanted to focus on the unit development. And just clarify, first, in terms of the 13% unit growth, is that something where you're thinking this is several years for the 13%? And then part two of that question is, we've seen a number of companies running into permitting and construction issues. Given this is not a level of unit development you guys have been at in quite some time, can you provide some additional thoughts on confidence of getting to those figures, not just in 2023 but on a go-forward basis?

Sure, so I think for the time being, we should assume 13% is our go-forward number, but we'll calibrate it again a year from now. But it would be unlikely unless we saw something that was negatively impacting us pretty dramatically that we would then step backwards to 10%. In terms of our ability to literally get the stores open and constructed and permitted, I think we face many of the obstacles of the other companies that you're calling out are facing. But have been at a 11 store run rate now for a couple of quarters - I think in our third quarter, we opened 11 stores. In our fourth quarter, we opened 11 stores. In this quarter, we're on pace to open 10 stores and that's a Q1 number. And then we - as we look forward into Q2, right, so not so far forward, our Q2 pipeline is quite strong and probably if everything goes reasonably well, we'll be more than 11 stores. So we have had some challenges here and there, but nothing that has slowed our pace in any significant way. And candidly, at least from our experience - some of those issues are still kind of holdovers from things relative to COVID. So I think a year from now, I'd like to think anyway, that some of the challenges that people have been facing might dissipate a bit because we're getting further and further to the tail end. I hope and unfortunately this will remain true to tail-end the COVID. And at least that piece of the challenge that you're calling out will go away.

Right I'll leave at that congrats, thank you.

Thank you.

Thank you. The next question comes from Jay Sole with UBS. Please go ahead sir.

Right thanks so much. My question is about the share count guidance for this year. It looks like the share count at the end of the quarter was 30.4 million. You guided 30.7 million. It seems like you might generate $125 million, $150 million in free cash. Have you considered buybacks? It looks like you could buy back 5% of the shares at the current stock price. What are your thoughts about that? Thank you.

Yes, Jay, it is something that we've looked at, and it's something that is an option. What we've really focused on is building our inventory, building new stores. We've got a great payback on our new store rollout. And so where it's pretty much guaranteed payback on our new stores we've seen others who have opportunistically bought back shares and only to see the stock price be volatile after doing that. I think for us, our use of cash is better spent right now in growing the business and building new stores and tackling some of that white space that we have available. I would say that, again, looking at the share count, that is something that maybe a year from now that we look out a little more seriously. But for the near term, it's not something that we've got the appetite for right now.

Okay. And then maybe I know there's, been a lot of questions about this 900 store target. But Jim, if you could just talk about what were, some of the parameters that you put around this independent study, because Tractor Supply has about 2,000 stores. Why only 900? Why not more than that? Because if you give the handy map that you guys you have on the slide deck, I think it's Slide 16, there's a lot of states that don't have a whole lot of density like you do in East Texas and California. What would be the reason to not say, hey, 1,500, 1,700 stores could be the ultimate upside opportunity?

Well, there's a couple of things. I'm kind of smiling because a few years ago, nobody thought we could ever open 300 stores or 500 stores. Now we're raising it to 900 and it seems conservative, which is, to some degree, a nice complement. I think the way we look at the study was -- and whenever you do an estimate like that, there's ranges of different assumptions, right. And you can relax assumption one or assumption two or assumption three or multiple more assumptions simultaneously, so the universe of potential outcomes is actually quite broad. So when we got the results of that study, we had to apply some judgment and say, where do we think -- what do we think is a reasonable target for the midterm, and that's why we're at the 900. We certainly have the possibility once we get closer to that. And clearly, we're several years away from getting -- bumping our head against the 900 store ceiling. But based on what we see in the development around the country, based on what we see with new stores opening in some of these newer states, seeing if there's any kind of cannibalization, there is some likelihood that will take that 900 up again. But just again in the spirit of complete transparency, that's four years away or something, right? We're -- we've got 400 more stores to open before we start thinking about what our next new store target is. All of that said, I appreciate your sort of bullishness and the comparison to Tractor Supply. They - we have a world respect for those guys, incredible company, extremely well run. They've led the path for us from a consumer standpoint sometimes. And certainly from a Wall Street perspective and if we can approach anything close to their store count, there is plenty of opportunity for us to continue to expand our brand across the country.

Okay got it, thank you so much.

Thanks Jay.

Thank you. The next question comes from Mitch Kummetz with Seaport Research. Please go ahead.

Yes, thanks for taking my questions. I just have two. I wanted to drill down on a couple of things that have already been discussed. One was on the product margin. I know you guys have historically been predominantly full price retailer. But do you have a sense as to what your full price percent is today versus maybe what it was pre-COVID? And then when I look at the margin bridge for 2023, you've got the product margin going up. I'm kind of curious what's embedded there in terms of full price percent. I don't know if you got that maybe ticking down a little bit. I would think that if anything, the main driver again would be the exclusive brands. But can you talk a little bit about the full price selling percent? And then I got a follow-up?

Sure, Mitch great question. We haven't disclosed the full price selling mix, but we have said it's the vast majority. And compared to pre COVID, the amount of full price selling has gone up a couple of percentage points from back then. And so that's kind of what I can give you there. As far as the product margin expansion during the quarter or during the year, it's really going to be driven by more of the full price selling as well as exclusive brand penetration growth of 300 basis points. It may sound like a conflicted answer. So the part of your question where you said -- where you asked if there's going to be some giveback from a clearance standpoint, there are some products or categories where we are expecting to have the product margin not grow like it did or maybe there's a little more clearance baked into what we've estimated. But we think that's going to be more than offset by better full price selling in other categories. So the mix of where we may have some clearance versus this last year may change a little bit, but that product margin expansion does contemplate some more full price selling along with the exclusive brand penetration.

Okay. Appreciate that color. And then also some light on the margin bridge, I noticed that you're expecting occupancy deleverage in 2013 on a 4.8% same-store sales increase. I'm just curious what is the - what's the leverage point now on occupancy? And has -- maybe that's gone up, but I guess it's above a 5% comp or above the 4.8% comp. Can you talk a little bit about that?

You're thinking about it the right way. It is above 4.8% for this year. I would say it is more of a level set year. We've tried to provide as much color as we could down the P&L. We didn't give leverage points, but it is well above that 4.8% guide. As we get into next year and we see this as a level setting of the business where we'll grow from here, we'll provide you with some - we respect to provide you an way next year with some leverage points that will probably look more similar to what we have historically had. For this year, it's something we're not providing.

Mitch, it's Greg.

Okay yes.

I would just add that if you've looked at the phasing of new stores last year, we opened 22 new stores in the back half of last year. So that puts pressure on occupancy rate this year, of course. And then we're opening 13% new units, which is a little bit elevated from the 10% unit algo. So that again puts some pressure on occupancy.

That makes sense.

The opening through this year, what we're planning on, should help with that flow next year as we give you some leverage.

Okay thanks again.

Thank you. The last question comes from John Lawrence with Benchmark. Please go ahead.

Great thanks congratulations, guys great quarter.

Thanks, John. I appreciate you calling that out.

Jim, would you just - I know calls run long, but let me just -- one quick question. If you look at your customer and walk him through the, like you say, several years in the business, do you think that - if that customer came to you years ago to buy work boots or one of the segments, do you think most of the growth has come from that customer, buying that one specific thing, like boots or fashion or whatever? And then as time has moved on and through the years, you've attracted more customers, but then that historical customer has shopped more of the store and expanded his basket?

So the quick answer is, it's both, right? In very rough numbers, we've grown nearly 70% in sales over the last 2 years. Almost exactly half of that 70% can be attributed to a 35% growth in attracting new customers into the brand. So therefore, balance -- if there's no real help for us in terms of inflation and basket size that's been pretty de minimis. So the balance is our legacy customers shopping more frequently and undoubtedly expanding their wallet and shopping different parts of the store. One of the things that we said when we first went on the road and when we were going public is, more than half of our customers shop at that point really only had kind of two pieces of the business, western and work, but we saw a lot of crossover between the two businesses. And so I think your intuition is right that a portion of our growth is just getting more share of wallet from somebody that has been a tried and true customer for us. So they might buy cowboy boots, but a Carhartt jacket and now they bought a western and work customer combined. So if I were to take my answer maybe up one level in terms of altitude. We're thrilled with the growth we've been able to achieve because it's - we're not promoting the business, we're not running more sales. It's extraordinarily healthy full price selling growth. It's driven both by the attraction of new customers and the increased frequency of current customers. So again, we're extremely pleased with the most recent year and taking a page out of your book in terms of your question, it's been a pretty good decade of growth. We've added $1 billion in sales since we went public just...

And there's - and not to take it too far, but there's no reason that, that similar sort of trend could happen over the next three or four years as those new customers find more parts of the store?

Correct. No. Look, we always have to challenge ourselves to find more opportunities for growth. We're - as I had mentioned in an answer to a question earlier, we're thrilled with the share and the sales we're generating from this country lifestyle customer. But we're also just getting started, right. There's plenty of opportunity for us to attract more of those customers into the brand. We started to do some small sponsorships just as an example, with NASCAR. So that world of fan base is open to us in addition to our tried and true legacy sponsorships with PRCA and PBR and sort of the rodeo circuits. So there's plenty of opportunity for us to continue to get growth, continue to add customers and then to be a bigger part of their apparel and footwear spend. I don't know how big that could be. I mean we've raised our TAM from $20 billion to $40 billion. There's another publicly traded footwear company that think the TAM is $1.8 trillion. So we've got some room between our $40 million and that $1.8 trillion number.

Got it, thanks again for your time, I'll be in touch. Thanks.

Thanks so much.

Thank you. This concludes our question-and-answer session. I would like to turn the conference back over to Mr. Jim Conroy for any closing remarks.

Thanks, Jacob, and thank you, everyone, for joining the call today. We look forward to speaking with you all on our first quarter earnings call. Take care.

Thank you. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.