BOOT

• Store Expansion: Over the prior 12 months, the company opened 93 new stores, representing a 20% increase in total store count. New store productivity is tracking roughly in line with the historical target of $3.2 million in annual sales per new store, and may be slightly better than this target. Management prioritizes opening high-quality stores rather than hitting arbitrary opening targets, and the expected short-term pressure on occupancy rates from rapid expansion is already factored into operational planning. New store assortments start with a broadly consistent base nationwide, with subtle, data-driven tweaks tailored to local market demand and competition after opening. New markets will be entered in the remainder of the year, though details are not disclosed for competitive reasons.
• Exclusive Brand Strategy: Exclusive brands currently make up just over 40% of the business, and management remains confident that penetration will reach 50% over the coming years, with no change to this long-term target. Dedicated standalone websites for exclusive brands (including Cody James, Cheyenne, and Hawks) are delivering strong growing traffic and sales, with millions of monthly visitors. The core goal of these sites is brand storytelling and customer education, rather than direct e-commerce conversion; only ~2% of visitors convert directly on the sites, with most driven to physical stores to purchase. No major behavioral differences between new customers from these sites and the existing customer base have been observed, with only minor variation across individual brand sites.
• E-commerce and Digital Initiatives: TikTok Shop continues to grow very quickly as a sales channel in the U.S., matching eBay's current market size. The company sells both exclusive and third-party brands on TikTok Shop, and is successfully partnering with nano-influencers (influencers with under 10,000 followers) and college sororities during rush season to drive engagement. Dedicated exclusive brand sites are growing sales steadily, and help build stronger brand affinity than product listings on the main Boot Barn e-commerce site.
• Customer and Transaction Trends: The customer base remains evenly split between new and returning shoppers. Newer geographic markets like the Northeast see a slightly higher share of new customers, while legacy markets like Texas and California have a slightly higher returning share, with no major recent shifts in this balance. July traffic declines were broad-based across all regions and income groups, with no uneven impact from macroeconomic pressures on lower-income or rural customers. The company’s business is primarily needs-based, so core products are among the last that customers cut spending on during slowdowns.

• Management reaffirms the company's existing full-year same-store sales guidance range of 3% growth at the high end.
• Full-year marketing spend is targeted at 3% of total revenue; any quarterly deviations from this target are purely due to timing shifts of marketing activities like new store grand openings, not a strategic pullback in spend.
• Management expects average unit retail (AUR) to increase 2% to 3% for the full year, and total transactions to be flat to up 1%, which aligns with the top-end same-store sales guidance. Price increases for 2024 are more muted than in recent years, lower than levels seen last summer, consistent with the tempered AUR growth outlook.
• The company targets annual new store growth of 12% to 15% in store count, and the current pipeline for the remainder of the year supports full-year guidance. Next year's store opening count will remain in this 12% to 15% range, with a more precise number to be released later as real estate deals are finalized.
• The $3.2 million annual sales target for new stores is maintained, with current performance tracking roughly in line, and no material upgrade to the target is needed at this time.

No detailed financial performance data for individual product segments, including absolute revenue figures or revenue contribution percentages, is provided in this portion of the earnings call transcript.

• Rapid 20% store count growth over the past 12 months is expected to create short-term pressure on occupancy rates, though this outcome has already been factored into operational planning.
• July experienced broad-based subdued traffic that management attributes to seasonal timing and the World Cup distraction, but a continued slowdown could impact near-term performance.
• Attribution of in-store traffic driven by dedicated exclusive brand websites cannot be accurately measured at this time, so the full impact of this strategy is unconfirmed.
• No other material risks or operational failures are discussed in this portion of the transcript.

Q: The 12-15% annual store growth target has a range based on real estate deal quality. Is management prioritizing hitting the target number, or prioritizing good real estate, and what is the outlook for occupancy leverage?

A: Management prioritizes opening high-quality stores over hitting a numerical opening target, and the existing pipeline supports the current full-year guidance. For next year, the store opening count will remain in the 12-15% growth range, with a more precise number to come as real estate is finalized. The current occupancy rate position is healthy, and the expected pressure from rapid expansion is already factored into planning. Over three years, EBIT margin is still on track to expand by 240 basis points, even with this expansion.

Q: Exclusive brand penetration is currently just over 40%, with a long-term target of 50%. Is this target still achievable, and what traction are new e-commerce initiatives like TikTok Shop and dedicated brand sites seeing?

A: Management reaffirms that 50% is the correct long-term target, and remains confident it will be hit over the coming years, with the current shift from work boot growth just a temporary rebalancing. Dedicated exclusive brand sites are delivering strong growing traffic and sales, with millions of visitors using the sites for brand storytelling rather than just direct purchases. TikTok Shop is growing very quickly in the U.S., now matching eBay's sales size, and the company is seeing strong traction selling both exclusive and third-party brands there via nano-influencer partnerships.

Q: Is the lower-income or rural customer facing more pressure from macro factors like high gas prices, and what is the balance of new vs returning shoppers?

A: July's broad traffic decline was not driven by macro pressures or uneven weakness across customer groups. Management sees no K-shaped divergence, with even pullback across income levels, and no indication lower-income customers are cutting trips or purchases. The balance of new vs returning shoppers remains roughly half and half, with only minor geographic variation: newer markets like the Northeast have a slightly higher new customer share, while legacy markets like California and Texas have a slightly higher returning share, with no major recent shifts.

Q: What are the pricing assumptions in guidance, and are customers chasing promoted products more than in recent quarters? What is the health of overall inventory?

A: Price increases in 2024 are back to normalized levels, and are more muted than last summer, as the company and its vendors work to minimize price hikes for consumers. Promotion take rates have not shifted higher, and markdowns as a share of total inventory remain below historical averages, with shallower clearance discounting than a year ago. Inventory health is very strong, with a focus on stocking core replenishment styles that will sell through over time even if movement slows, so there is no near-term inventory risk.