Good day, everyone, and welcome to the Boot Barn Holdings, Incorporated Fourth Quarter Fiscal Year 2019 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. Mr. Watkins, please go ahead.

Thank you. Good afternoon, everyone. Thank you for joining us today to discuss Boot Barn's fourth quarter and fiscal 2019 earnings result. 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 and these forward-looking statements reflect Boot Barn's judgment and analysis only as of today, and actual results may differ materially from current expectations based on a number of factors affecting Boot Barn's business. Accordingly, you should not place undue reliance on these forward-looking statements. For a more thorough discussion of the risks and uncertainties associated with the forward-looking statements to be made during this conference call and webcast, we refer you to the disclaimer regarding forward-looking statements that is included in our fourth quarter fiscal 2019 earnings release as well as our filings with the SEC referencing that disclaimer. We do not undertake any obligation to update or alter any forward-looking statements whether as a result of new information, future events or otherwise. I will now turn the call over to Jim Conroy, Boot Barn's President and Chief Executive Officer. Jim?

Thank you, Jim, and good afternoon. Thank you, everyone, for joining us on today's call. Fiscal 2019 was an outstanding year for Boot Barn. In this call, I'm going to discuss the highlights of our annual performance and then walk through the details of our fourth quarter results; including the recent progress we've made executing each of our four strategic initiatives. Greg will then review the financial results and outline our fiscal 2020 outlook. Following, Greg, we will open the call up for your questions. Looking at the full-year, our results exceeded the expectations we initially set for the business. Consolidated same-store sales increased 10%, with e-commerce comps up 12.2% and retail stores comping up 9.5%. At the same time, merchandise margins increased 110 basis points, driven by better full price selling and growth in exclusive brand penetration. The combination of double-digit topline growth and significant merchandise margin expansion helped fuel 150 basis point increase in EBIT margin to 8.3%, achieving nearly 40% EBIT growth for the year. Looking more recently at the fourth quarter, we finished the year extremely well. We achieved growth across the business during the fourth quarter despite cycling a 12.1% same-store sales increase in Q4 of last year. For the quarter, consolidated same-store sales increased 8.7% with all major geographies and product categories posting gains. In terms of channels, our retail same-store sales increased 9.8%, our eighth consecutive quarter of positive store comps. E-commerce same-store sales improved 3.3% as we remained focused on improving the profit contribution of our digital business. Similar to our full-year performance, the strength in same-store sales, combined with the 150 basis points of improvement in merchandise margin drove a significant improvement in profitability, with a 46% increase in EBIT for the quarter. We believe that our organization's steadfast focus on…

Thank you, Jim. Good afternoon, everyone. In the fourth quarter, net sales increased 12.9% to $193 million. As Jim mentioned, sales growth was driven by an 8.7% increase in same-store sales. The sales contribution from acquired stores and sales from new stores added over the past 12 months. During the fourth quarter, we added six new stores, bringing our store count at the end of the quarter to 240 stores in 33 states. Gross profit increased 19.9% to $63.4 million or 32.9% of sales compared to gross profit of $52.9 million or 31% of sales in the prior year period. The 190 basis point increase in gross profit rate resulted from a 150 basis point increase in merchandise margin and 40 basis points of leverage in buying and occupancy. Merchandise margin rate increased as a result of better full price selling, growth on exclusive brand penetration and from lower shrink. Operating expense for the quarter was $46.9 million or 24.3% of sales compared to $41.6 million or 24.4% of sales in the prior year period. Operating expense increased primarily as a result of additional cost to support higher sales and expenses for both new and acquired stores. Income from operations was $16.5 million or 8.6% of sales in the quarter, compared to $11.3 million or 6.6% of sales in the prior year period. This represents 200 basis points of improvement in operating margin. Income tax expense was $3.7 million in the quarter compared to $600,000 in the prior-year period, resulting in an effective income tax rate of 30% in the fourth quarter. The increase over the projected 25% tax rate was primarily due to a return to provision adjustment. The full-year tax rate of 18.7% was lower than our projection of 25% for the full-year as we benefited from lower…

Thanks, Greg. Fiscal 2019 was a fantastic year for us. We are very pleased with the momentum as we have moved into 2020. We are very excited about the opportunities ahead to drive same-store sales, strengthen our omni-channel experience, grow exclusive brands and continue to expand our national footprint through new unit growth. Before we open up the call to take your questions, I would like to sincerely thank the entire Boot Barn organization for their commitment and execution in fiscal 2019. As a result of your dedication and efforts to further grow and develop the Boot Barn brand, we had a great year and delivered tremendous results. Now I would like to open up the call to take your questions. Vicki?

[Operator Instructions] We'll go first to Matthew Boss with JPMorgan.

Thanks and congrats on a great quarter and the continued momentum, guys.

Thanks Matt.

Thank you, Matt.

So Jim, as you break down current same-store sales performance relative to the company's 3% to 5% historical run rate, are you seeing the upside in oil and gas regions to your more mature markets? Or is it a combination of both? And just how do you attribute this strength – do you attribute the strength to company’s specific initiatives or more macro? Just maybe a sense of what you're seeing out there and what you contributed though.

Sure. Well, and just to recalibrate, we have guided our long-term algorithm to like low-to-mid from a same-store sales perspective. I think that's what you're harkening back to, the 3.5% to 5%. Candidly, we've outperformed that number right. For nine years, we've averaged about a plus 8% and we constantly tried to move around everybody to the algorithm, which is low-to-mid single-digit comps and 10% unit growth and margin expansion through exclusive brand. Getting back to the root of your question though, look, I think we have to attribute some portion, maybe a third of the performance to macro, right. Employment is near or at an all-time high. The oil industry is pretty darn strong. So we've got a lot of guys out there looking and allowing people buying our products. But I do think the company has executed well. We continue to just harp on our four strategic initiatives. We've got 150 or so people at the store support center and roughly 3,000 people in the field, focusing on those four things every day and we're trying to kind of keep our strategy simple so our execution can be impeccable. And I think that's been working for us. I mean so our segmentation and our change in our media mix and the uptake we've made to the brand aesthetic from a creative standpoint, I think, has brought back customers that have lapsed Boot Barn, has opened the brand up to brand new customers. And with new customers, more traffic. We've got a very healthy same-store sales increase that is based more on more transactions and more customers, less promotions, higher margins. I mean it's the – we feel great about it. And it's really nice to have seen the two-year stack accelerate from Q3 into Q4 and bump up to a plus 20% because there are some questions I think from a lot of folks out there is, can you break free from the plus 13% or plus 14% two-year stack? And we were able to do that in the fourth quarter. So – and a longwinded answer to your question, but I think a portion of it is macro and a little bit more than half of it I think is continuing to focus on execution of the strategies that we've had in place for quite some time.

Great. That’s a good answer. And then on the expense front, I guess how should we think about the leverage point for SG&A this year versus – I think it’s historically been about 1.5% to 2% comp needed for leverage. And just any nuances between the first and second half of the year to be aware?

Matt, it’s Greg. Good question. Last year, fiscal 2019 was a bit of a year of investment in terms of we had really strong topline growth and really strong merchandise expansion growth. And so in some respects, we invested back into the business and back into SG&A. As we look to fiscal 2020, we expect to achieve that same kind of – our long-term algorithm estimated leverage rate of 1.5% to 2%. You couple that with getting some leverage on occupancy and buying it 4% or 4.5% this year as a result of both expanding our store count even more and our continued investment in the product design and development that's driving that exclusive brand penetration. And you get to seeing EBIT leverage or operating margin leverage at roughly a 3% or 3.5%.

Got it. Best of luck.

Thank you very much.

Thank you.

And we’ll go next to Jonathan Komp with Baird.

Yes. Hi, thank you. I want to ask a little bit more about the e-commerce business. I’d be really curious if you'd be willing to share any insights on the profitability improvement you're seeing for that channel, specifically. And then when you think about the comparisons, I know you called out April, which was unique. But how do you think about just overall the next few quarters the comparisons and how that will impact sales versus margins for the channel?

Okay. Good question. So on the e-commerce business. I guess I'd start with it, a bit of a tale of two cities. Our bootbarn.com has been extremely strong. And we feel great about that, of course that's the omni-channel brand the brand we're investing in. It's where we get a higher lifetime value from our customer. So the bootbarn.com business has continued to grow nicely, including in this current quarter. Most of the – all of the softness we've seen is in the sheplers.com business. And while it's a little bit disappointing, when we really kind of dig in to it, where we’re seeing most of the erosion is on traffic coming from paper click. And the way we kind of think about it is that piece of the business, from a financial perspective is probably the least profitable part of our e-commerce business because you're buying the customer nearly every time. And then from a strategic perspective, and this is a price conscious, non-loyal customer. So we have kind of taken a strategic decision to not chase customers from a paper click perspective. We've seen a little bit of an increase in cost per click and rather than increased our spending to continue to drive that part of our business from the topline perspective, we just kind of moderated our spending because I think increasing our spending to keep the traffic would be EBIT eroding. From a profitability standpoint, Greg can give you some color on the EBIT contribution?

Yes. We saw a really nice improvement in Q4 year-over-year in profitability of the e-commerce business. That business is still less profitable than our stores and we continue to try to work toward improving profitability and we continue to do that. As it relates to Q1 business, I think it will be a tougher comparative to show outsized improvement because we started that work last year in Q1. But we're going to continue to focus on profitability and where it doesn't makes sense to grow marginal, profitable sales, we won't do that.

Okay. Great. And just as a follow-up, so when you start to cycle the initial work last year, I think that implies maybe the sales comparison is less difficult. So what do you expect the comps to start to come back even though the rate of profit improvement might not be the same as what you've seen?

Yes, I think that starts, John, probably more for us in Q2. We started that work in the beginning of May last year. So Jim talked about, we were up against the plus 50 comp last year in e-com in April. And so we haven't started that work. We started that work, it hurt the same-store sales performance a bit last year. I think on the quarterly, we're still plus 20-ish in Q1. So it didn't take the business completely, but it did hurt and so we'll have a little bit softer compares during May and June.

Okay, great. And then my other question really relates to the outlook for the year. So you're pointing comps towards the high end of your typical range, at the high end of your earnings guidance, just kind of right in line with that 20% underlying growth rate that you're targeting on an ongoing basis. I'm just wondering, as you look at the outlook, so what's the puts and takes you see and if there's any meaningful opportunities for upside or downside or just how you're thinking about the profitability embedded in the guidance?

No. It's a good question. I think we feel good about the guidance we put out there, I think we're signaling 20% earnings growth on top of a year that we did 40% or more of earnings growth. In terms of puts and takes, you know, look, there is always confirmation out there about the economy, job growth, the new question about tariffs, et cetera. But from an industry standpoint, from a competitive standpoint, from an internal execution standpoint, our readiness in an organization perspective, I think we're set up well, honestly, for another great year. We've had continued strength in stores and healthy comps, more customers, less promotions. We've launched our three new exclusive brands, which was taking a bit of a chance between three new brands out there in a relatively short period last year. But as we commented, in the last couple of calls and on today's call, each of those three brands have taken root and are building share and have the opportunity to expand. When we think about new store growth, we feel like we are off to a pretty strong start in new stores for fiscal 2020. As Greg mentioned, we expect to grow 25 new stores and approximately 16 of them have already been identified. So we feel great about the execution across each of the different pieces of the business and we'd like to think that we are putting out our guidance number that is conservative.

Okay. Great. Thanks for all the perspective.

And we'll go next to Peter Keith with Piper Jaffray.

Hi. Thanks guys. And my congrats as well on the great results. I want to just follow-up on the tariff commentary. Obviously, I appreciate you framing that up, but maybe just to tie a bow around it, would you – I guess say that with regards to how tariffs shake out, that you would anticipate minimal impact on the overall financial results?

Yes. I think so. I mean it's – when we think about a couple of different perspectives, I suppose. One is we are specifically responsible just for the portion that we import through exclusive brands and admittedly, part of that comes from China and we're looking at alternative sources to further mitigate that risk. Of course, our vendor partners with a similar problem as they are bringing in from China as well. We met with all of them. In fact we've got all of our major vendor partners had top-to-top, "meetings" with them in the last couple of months. And all of them are looking at alternative places to source. And I do believe that even if they continue to source some of their product through China that there's opportunity for pushing back to their factories and looking for more efficiencies in the supply chain. So the vendors and the factories can bear part of the cost and in proportion, does get passed along to us. We believe that we can pass it along to the customers, right? And most of our product, as you well know, Peter, are functional in nature, right? So steel toe work boots, claim resistant work apparel and actually, a lot of our men's western product is being used by guys that are outside working and it's not really a discretionary spend. So we believe that whatever portion of the tariff that would get passed along to us, we most likely would be able to pass it along to our customer. And maybe one more piece of color on that is to framing up in terms of what it looks like on a pair of boots. If we pass along the entire cost of a tariff to a customer on a boot – that costs $179 retail, that retail price would go up to about $189. So we'd rather not have to do that. We obviously hope this goes away entirely. But even if we had to pass the entire cost along, I think it's a relatively modest increase for product that tends to be non-discretionary for most of what we sell.

Okay. That’s very good and helpful feedback. And maybe just pivoting to the commercial business. So interesting that you're launching a B2B website. Could you give us maybe an update on your commercial efforts for this past year, where it maybe should add as a total percent of sales and how that business has been growing as of late.

Sure. Our commercial accounts business has been an area that we've been investing in. We've got now, an organization of six or seven people that are kind of a direct sales force. Part of that is knocking on doors, so to speak, from a B2B standpoint and trying to get new accounts. And part of that is equipping or training our stores to help identify and find leads because oftentimes, people just walk into our store looking for work apparel, work boots. And we really want to engage them in a discussion to see if they are part of a broader key, more – or crew where we can outfit the whole crew. In terms of to give you some dimensions of the size and growth rates and we called out in the past that it's a low single-digit portion of our business, call it roughly 3%. It's growing extremely quickly. It's growing – I don't know how to give you a number. I'll just give you a number, but probably north of 40% or 50% annual growth in our commercial accounts business. And we're investing in that, though. With people and with products and this latest addition of the B2B website, really will do two things for us. One, it will help us service current accounts better and we can keep their roster of their crew completely electronically on their own site. But maybe even more than that, it enables us to identify, target and hopefully recruit in larger accounts, right. One of the only stumbling blocks that we've had in going after national accounts of much bigger companies is we don't have an electronic way of taking care of their business and in dealing with their voucher programs the way they subsidize the purchases to our stores. And the commercial accounts sales team, I think once we eliminate that particular stumbling block or handcuff from their selling proposition, they will have even more success with their current accounts and landing additional and perhaps even bigger accounts. So it's a bit of an investment in the future. It's relatively small dollars of an investment. We're just finding the time with the current development team to put that in place, but we're in the final innings of rolling that out and we've got a beta client or account setup and about ready to start.

Very good. Thanks so much, and good luck this coming year.

Thank you, Peter.

Thank you.

We’ll go next to Oliver Chen with Cowen and Company.

Hi, great results.

Hi, Oliver. Thank you.

Regarding merchandise margins, that's been also impressive. What do you see as the opportunity going forward in terms of both inventory management and maximization of full price selling? Also would love to hear your thoughts on the private brands and how you're thinking about how they're segmented in terms of not being cannibalizing and also the brand positioning and inventory management techniques just to engage in the right level of test, read and react? Thank you.

So I can take the first two parts of that, the inventory management and opportunity for full price selling. We are exiting fiscal 2019 with our inventories cleaner than they've been the last couple of years. So we're really well positioned from a content perspective and we're really pleased with that. In terms of full price selling, we’ve talked about the fact that about 85% of those sales were done at full price, with the balance split kind of between clearance and promotions. And when we look at that, the promotions is the one place that we have a clearer control over how we talk to the customer. And we are going to continue to look at opportunities to reduce that even in terms of days or level of promotion. We haven't seen a negative impact and we've done that in the past. So we'll continue to pull on that lever. In terms of the clearance, like I mentioned, I mean the content of the inventory is very, very good. And so we're being able to be more targeted in our promotions in terms of either merchandise category or perhaps the store level approach. So really good opportunity, and we're pleased with the merchandise margin contribution as we continue to grow our exclusive brands, so really pleased with that.

I can take the second piece on private brands, Oliver. From a segmentation standpoint, we pretty strategically, I think, put together six different brands and if you think about three different customer bases, men’s, ladies and work. And on the other dimension, we think about your core legacy customer versus a brand new customer, we've sort of put a brand in each of those boxes, right. So Cody James and Shyanne are intended to really bring product to life for the traditional legacy Boot Barn customer and – our biggest customer [indiscernible], which is why Cody James and Shyanne are two biggest brands. We've extended the Cody James name into Cody James Work to try to bring that same customer an assortment of work merchandise, so they can kind of walk across the store from the western side to the work side and buy a pair of work boots that go along with their Cody James jeans, for example. But the other three brands are really with the purpose of going out and introducing Boot Barn to net new customers. So the partnerships with Brad Paisley and Miranda Lambert and both of those partnerships are extremely strong with their teams contributing quite a bit, above and beyond any agreement that we have in place with both of them. So we feel extremely positive on those two relationships. And the goal there, of course, is to help introduce Boot Barn brand and their line specifically to the fan base. And their fan base is, in both cases, are very broad and perhaps one concentric circle outside the core western customer at Boot Barn. Hawx similarly, ironically, because Hawx is going after a world customer, that perhaps doesn’t have a western aesthetic and is looking to get a [indiscernible] work boots, but…

Thank you. That’s really helpful. It did. The last question is on customer acquisition costs and thinking about customer lifetime value and how you're managing the active between new versus existing customers, the lifetime value. What are your thoughts about how your marketing spend has evolved? And also the key drivers to the [BOV] analysis?

It's an excellent question. Our marketing has evolved a couple of different ways. Number one, the segmentation, enables us to speak specifically to each segment. So a traditional work guy isn't getting something about ladies fashion or Festival wear to go to stagecoach and vice versa. So I think that has helped. We have really taken a pretty giant step forward from a creative standpoint with the intent of getting customers in the industry and having people that aren't necessarily traditional western customers to look at the brand. And that had some just tremendously positive response from the way the branding has come across. And then finally, from a media mix standpoint, we have pulled dollars away from – just to give an example, we pulled dollars away from direct mail, sending catalogs to current customers and have shifted it to wider net broadcast type media. So in some cases, it's television. A lot of country music radio, whether that's terrestrial or online radio or satellite radio. A lot more social. And the goal of – virtually of all those channels is to bring more customers into brand. And it is somewhat of a virtual cycle. We think we have a great assortment, new updated creative and branding. We are excited to share that with new customers and introduce them to the brand. And we're very careful to not lose sight of the fact that our core customers, all of you know us. And they want core western products and work boots and work apparel. They've kind of come to love about Boot Barn. So we communicate with those guys and one in – more often than not through e-mail. So we really have put e-mail up on a pedestal in terms of importance. It's by far of the most frequent communication that a customer will receive from us and the creative looking field, the messaging that you receive, depending on how much segment you're in, you are analyzing response and open rates and quick through rates, et cetera. And that has really enabled us to pull money away from direct mail and put it into e-mail. This is virtually free, and save the dollars to go out and get new customers.

Thank you. Very helpful. Best regards.

Thanks Oliver.

Thanks Oliver.

And we'll go next to Paul Lejuez with Citi.

Hey, thanks guys. Curious if you could share the credit card penetration level this past year. And also curious what the learnings were from that program, if there are any plans to make that more of a focus in the year ahead? And then second, just – I think you mentioned increasing the work category in stores. Did you feel like you were missing sales in that category? And as you look to increase the SKU count in total across all stores. But I'm curious, how you plan to do that? Will that be with your exclusive brands? Or will that be across the board, all brands? Thanks.

Paul, it's Greg. The credit card penetration this past year was mid-single digits and grew from low single-digits last year. So we added roughly about 150 basis points of penetration. It's still a pretty small piece of our business. And when we think back about what we're really trying to do with this program, it was the – number one, to create a little bit more stickiness to that customer, create better loyalty with that customer, and also give them an opportunity to expand their open to buy and shop with us some more. I don't think we get to be the department store penetration of the 40%. So maybe even Best Buy that I think is probably a 30%. But it is important to us and we want to continue to grow it. And again, I think from a loyalty perspective, it creates a more loyal customer. So that's the warnings of that. Jim, I can talk about work or you can?

I can take it. On the work piece, if you went back through the last several quarters, we've been commenting about the strength of the work business, both apparel and work boots. And are we – where we missing sales? It's hard to believe. I mean our business was so strong, but I suppose the decision we've taken to add more space would indicate that we think there's more opportunity. Give you some example of what that's kind like. We can look at some businesses, some parts of the different markets around the country that tend to sell – pull on work boots and not sell as much lace up work boots. While we think there's an opportunity now to kind of attract both customers into some of our stores that would tend to SKU one way or the other. So we will build more capacity in the work boots section, broaden the assortment and sure a part of that broadened assortment will include both Hawx and Cody James. And the goal there is to – that part of the business or that part of the store has perhaps the highest sales productivity per square foot and to alleviate some of the kind of inventory productivity of the work section and have it turn a little bit slower and more in line with the rest of the stores. So by doing so, we'll get a more comfortable shopping experience, a broader assortment, sell more products and perhaps, introduce a more traditional work customer to Boot Barn that otherwise wouldn't have come into the stores. So if you think about all the different strategies that we have recounted even over the last few questions, there – it's kind of two pieces. How do we take care of our current customer base while also introducing and bringing new more customers and I think the expansion of the work pad, so to speak, within the store is just another way to do that.

Gotcha. And then just one follow-up. The new craft stores that's planned for this year, the one that you already have locked and loaded. What's the average box size compared to previous classes? What should we use for the average of this year's craft?

It similar to past years, 11,000 square feet or so. As you know, Paul, some of the acquisitions that we made, most notably Sheplers had larger store sizes. But our brand-new stores that we've opened tend to be somewhere between 10,000 and 12,000. So if you had to pick a number, it's close to 11,000.

Yes, I would say 11,000 million and [1.7 million to 1.8 million] of productivity versus the average store does about $2.4 million.

Gotcha, great. Good luck guys.

Thank you, Paul.

Thank you very much.

We'll go next to Tom Nikic with Wells Fargo.

Hey, everybody. Thanks for taking my question. I’m not sure if you touched on trends by region, but if there were any differences between Texas or California or any of the other major regions. I’d love any color from that perspective?

Tom, fortunately, we saw a very broad-based strength and very little differences across regions. Texas was a little bit better than it was in the third quarter but it wasn't so great that it pulled up a whole bunch of underperforming regions or districts. In the fourth quarter, the way we think about our business is we have 21 districts and three regions. The three regions were all pretty much in line, perhaps the one that includes Texas was a bit better. All 21 districts were positive, which was just a testament to Mike Love, the guy who runs our store business and the field organization. So the region of differences weren't notable enough to call out.

Got it. So the second Christmas that you get in Texas, in Q4 from the rodeos wasn't – it didn't make a difference in the quarter. Basically, you had broad-based strength. I'm thinking about that correctly, right?

Yes. We did have broad-based strength. Yes, we did have a very good rodeo season in Texas, and – but it was just slightly better than all of Texas at the balance of the quarter, and that was just slightly better than the whole chain for the whole quarter.

Got it. Okay. And just one quick question for Greg, so based on what you told us about the leverage points on SG&A and the buying and occupancy lines, I want to sort of flow that through my Handy-Dandy Excel model. I kind of get that to get your operating income guidance for the full-year, there's basically no merchandise margin expansion. I'm just kind of wondering if there is – if that's just a function of conservatism, if it's something we should keep in mind for this year, from a mix perspective or anything like that, that might sort of hinder your ability to drive even stronger margins than what you are discussing on the call today?

Yes. Tom, we do expect to see merchandise margin expense during the year, especially in line with growth in different brands. So my guess is I don't have your model in front of me, but my guess is that maybe your sales number is different. So we can talk about that offline, if you'd like.

Okay. That’s helpful. Thanks. Best of luck in fiscal 2020.

Thanks, Tom.

Thanks, Tom.

We’ll go next to Mitch Kummetz with Pivotal Research.

Yes. Thanks for taking my questions. All right, Greg, I’m going to put you on the spot because you mentioned the sale, I didn't see in the press release. So we could take that online here. Is there a sales number or range that you're looking for, for the year?

Yes. We haven’t provided that, Tom. Perhaps we'll provide it in the next quarter or later on. But right now, we have not provided the range.

Okay. And then so I think about the puts and takes on gross margin, again, you gave us a leverage points. You mentioned that merch margin should be up for the year. I guess I'm just thinking about, a shrink has helped you guys. How do you think about shrink? Are there other things, other components on the gross margin line that we should be thinking about either should be part of merch margins or whether it's – I would imagine private label is going to continue to help you channel mix. I don't know how you're thinking about that? I don't know how you're thinking about lapping like all the strong full price selling? Is there any – are you adjusting anything for tariffs? Just yet I mean obviously you’ve provided some commentary around tariffs. I don't know if you're taking a – if that's factored into the guide?

Right. So in terms of – you are right, exclusive brands, we will see increased or improved merchandise margin because of exclusive brand penetration. We aren’t incorporating into our guide and the improvement in shrink. The accountants wouldn’t let us do that and so I'm not making a bet on that. So it was planned at last year's level. In terms of tariffs, we have baked in the increase from 10% to 25% that happened earlier this month. That's embedded in our guidance. We do think that freight will be a little bit of a headwind this year. We didn't see that last year so we were able to offset that. But we do expect to see a little bit of pressure there, but that's probably 15 basis points or so like that.

Okay. I guess lastly – yes, go ahead.

I was just going to add. We do expect a little bit of improvement in terms of less clearance and fewer promotions, but again that's a pretty small piece of the overall margin story.

Got it. And then lastly, I don't know if you want to volunteer any sort of cadence shape to the same-store sales guide for the year. Obviously, you're not straight lining it because you're looking for a six comp in Q1 versus a five for the year. But is there – again, I mean can you provide any shape to that so we just be thinking about the compares? I don’t know you talk about the two-year stack. I don't know if you think of things in terms of a three-year stack and how that might impact kind of the shape of the comp guide?

Yes. It’s a great question, Mitch. And I guess a couple of things. Number one, last year, we guided to a mid-single-digit and said we would be up plus 5%, so a two-year comp of plus 10% – or a two-year stack of plus 10%. And this year, we are seeing a plus 5% on last year's plus 10% get you a plus 15% stack. We guided plus 6% for Q1 and that’s going up against 11.6% last year, so a two-year stack of $17.6 million, which would be our second strongest two-year stack up against the quarter we just finished. So we feel good about the business, especially as we have pretty good insight into it. Further out, it's a little bit trickier. The one call I'd make or remind you is that Q3, the days between Thanksgiving and Christmas are fewer, right. This is the shortest period of time between Thanksgiving and Christmas. And so there's some conservatism, if you will, in terms of how we think about the business in that quarter. But overall, I would say we're not providing specific guidance beyond the current quarter we're in.

Okay. Fair enough. Thanks. Good luck.

Thank you, Mitch.

And at this time, I would like to turn the call back over to our speakers for any additional or closing remarks.

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

That does conclude today's conference. We thank you for your participation.