Good day, everyone and welcome to the Boot Barn Holdings Fourth Quarter Fiscal Year 2021 Earnings Conference Call. As a reminder, this call is being recorded. It is now my pleasure to turn the conference over to your host, Mr. Jim Watkins, Senior Vice President of Finance and Investor Relations. Please go ahead, sir.

Thank you. Good afternoon, everyone. And thank you for joining us today to discuss Boot Barn's fourth quarter and fiscal 2021 earnings results. With me on today's call are; Jim Conroy, President and Chief Executive Officer; and Greg Hackman, Chief Operating Officer and Chief Financial Officer. A copy of today's press release is available on the Investor Relations section of Boot Barn's website at bootbarn.com. Shortly after we end this call, a recording of the call will be available as a replay for 30 days on the Investor Relations section of the company's website. I would like to remind you that certain statements we will make in this presentation are forward-looking statements. These forward-looking statements reflect Boot Barn's judgment and analysis only as of today, and actual results may differ materially from current expectations based on a number of factors affecting Boot Barn's business. Accordingly, you should not place undue reliance on these forward-looking statements. For 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 2021 earnings release, as well as our filings with the SEC referenced in our 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, I'll review our fourth quarter and fiscal 2021 results, highlight each of our key strategic initiatives and provide an update on current business. Following my remarks, Greg will review our financial performance in more detail and then we will open the call up for questions. Looking at our recent results, the fourth quarter was extremely strong with consolidated same-store sales growth of 26.9% driven by a combination of underlying strength in the business and external factors, including a boost from recent government stimulus, as well as an easy comparison to the end of March last year. Same-store sales in our physical stores were very strong, increasing 28.5% with growth driven primarily by an increase in transactions. The momentum our e-commerce business experienced since the start of fiscal 2021 has continued, with sales increasing 19.5% over the same period last year with even more pronounced growth in profitability. Merchandise margins were also very strong, increasing 300 basis points year-over-year are driven primarily by better full price selling. Another component of the improvement in merchandise margin was a 120 basis point benefit from lower shrink. I'm pleased with the ability to drive profitable sales and maintain our full price selling philosophy across both channels. The acceleration in sales and strength in merchandise margin resulted in fourth quarter earnings per diluted share of $0.82, compared to $0.20 in the prior year. And adjusting for the tax benefit in both years, we grew earnings per diluted share more than 300% to $0.75, compared to $0.18 in the prior year periods. Moving to the full year. Despite the impact from COVID-19 and subsequent macroeconomic headwinds, we were able to achieve very strong results. Consolidated same-store sales grew 3.1% led by…

Thank you, Jim. Good afternoon, everyone. In the fourth quarter, net sales increased 37.2% to $259 million. The increase in net sales was primarily a result of the 26.9% increase in same-store sales, the sales contribution from temporarily closed stores that were excluded from the comp base and the incremental sales from new stores opened over the past 12 months. Gross profit increased 59.4% to $92.4 million or 35.7% of sales compared to the gross profit of $58 million or 30.7% of sales in the prior year period. The 500 basis point increase in gross profit rate resulted from a 300 point increase in merchandise margin rate and 200 basis points of leverage and buying an occupancy costs. Merchandise margin increased 300 basis points, primarily as a result of better full price selling and a 120 basis point benefit from lower shrink. Operating expense for the quarter was $59.5 million or 23% of sales compared to $48.3 million or 25.6% of sales in the prior year period. Operating expense increased primarily as a result of additional cost to support higher sales and increased incentive-based compensation. Operating expense as a percentage of sales decreased by 260 basis points, primarily as a result of expense leverage on higher sales. Income from operations was $32.9 million or 12.7% of sales in the quarter, compared to $9.7 million or 5.1% of sales in the prior year period. Income tax expense was $6.3 million in the quarter compared to $900,000 in the prior year period, resulting in an effective income tax rate of 20.3% in the fourth quarter. Net income was $24.6 million or $0.82 per diluted share compared to net income of $5.7 million or $0.20 per diluted share in the prior year period. Excluding the tax benefit in both periods, net income per…

Thanks, Greg. Our fiscal 2021 proved to be a challenging year. I am proud of the resiliency of this organization and the overall strength of the Boot Barn model. We have proven our ability to navigate as a company through difficult times. And I believe we will continue to fortify our leadership position in the Western and Work industry. I'm looking forward to fiscal 2022 and the opportunities we have to continue to build the business. Now, I would like to open the call to take your questions. Devin?

Thank you. We will now be conducting the question-and-answer session. [Operator Instructions] Our first question comes from the line of Matthew Boss with JP Morgan. Please proceed with your question.

Great. Congrats on excellent, really great quarter and even more so in the momentum.

Thanks, Matt.

So, Jim maybe on the 67% quarter-to-date comp relative to fiscal '20. And I think even more importantly, the consistency that you mentioned, particularly in May or the back half of that comp period. What do you attribute to the magnitude that you're seeing? And just any way to parse out the micro drivers of continued category opportunity that you're excited about where the market share opportunity that you see going forward in the Western landscape, which I know is fragmented?

Sure, good question. We will absolutely start with attributing you know a healthy dose of our current business to macro. You know, the stimulus checks that came out at the end of March is our immediate pickup in business, I will say that the business has remained very strong for longer than it has in the past coming off of stimulus. So, the review that, of course, is very positive. I think one other things we're experiencing is, you know people are now finally feeling more free to get out, go outside, go out for dinner, et cetera. And we're seeing it across the merchandise categories. So while we were continuing to get some sales growth in the last couple of quarters, more of it was needs-based. And now it's really much more discretionary categories. So it's men's and ladies apparel, it's Western Boots have seen a decent business in our Exotic Skin Cowboy Boots. And we've seen sort of a pivot from purely functional to just, you know, discretionary and more a wants-based business. To try to give you real specifics you know the 67%. Firstly, that is a total sales growth over two years ago. So there are some sales and they're attributed to additional store count that might be 10% or 12%, of the 67%. So then the balance is, well, how do you parse up the remaining 55%? You know, I would say that, we were coming in with a sales trend of several quarters prior to COVID that were, was wide around plus 10. And maybe we're executing a bit better than that, by - the balance of it is going to be macro, it's going to be pent up demand. As we look forward, all that said and attributing a fair amount of the current business to macro, there's still wins in our sales. Double entendre unintended. Going forward, I suppose, because we're still operating in an environment where many rodeos and concerts aren't going forward, but they're finally starting to come on sporadically. So over the next 12 months, we'll start to see big events, rodeos, concerts that weren't in the LY period, come back online. The second macro thing that might give us additional sales going forward is the recovery in oil patch. We call that FR Work Apparel for a reason it's still negative, but it's less negative. The price of a barrel of oil is between $60 and $70 today, and we believe that part of the economy will start to show some more growth. So while some of these macro factors may dissipate over time, we'd like to think there are some other things that will help us continue a very strong sales growth, perhaps maybe not 67% over two years, but still a pretty strong growth over the next couple of quarters. Hopefully that gave you some color on sort of how we're feeling about the business.

Yeah, that's great color. And then maybe if we broke it apart, one level deeper, on brick and mortar. So just given the strength that you're seeing at stores, and then tying to the acceleration and unit growth that you cited for the back half of the year, is there any ceiling for annual unit growth relative to the 10% that you've historically pegged the model at as we look forward? And just any metrics that maybe you can share on some of the new market builds that give you confidence in longer-term, accelerating the unit growth opportunity here?

Absolutely. We feel very good about our new store development. We have a full pipeline albeit that many of their stores will open in the latter half or and even the fourth quarter of this fiscal year. The positive signs that we're seeing are multiple, to be honest. We've seen very strong openings for brand new stores in essentially brand new markets that may not have the same brand strength. The Boot Barn brand strength that we would see in some of our more mature markets like California and Texas. So that gives us confidence that as we get into parts of the country that may not traditionally seem to be hurdled around for a Western retailer, those stores are doing quite well. And they're doing quite well selling Western merchandise as well as Work merchandise, but the split of business is very similar to the rest of the country. So very strong positive signs from the northeast markets for the initial group of stores there. The second piece, I would say is, as we are filling in some of our mature markets, most notably California and Texas. The level of cannibalization that we're seeing from surrounding stores has been very minor. Now admittedly, it's being completely masked in today's business by extremely outsized sales growth. But even prior to the acceleration, as we were filling in these more mature markets, the poll from local markets was pretty minor. And then perhaps the third piece of it is, to be able to open up new stores during a pandemic, when people aren't necessarily out buying footwear and apparel, particularly new markets and they have few stores open and project them to be coming in at better than a three-year payback is just very, very confidence inspiring for our new store pipeline. So as we get to the next fiscal year, I'd like to think that we probably accelerate a bit beyond the 10% new unit growth.

That's great color. Best of luck, guys.

Thank you.

Thank you.

Thank you. Our next question comes from line of Max Rakhlenko with Cowen & Company. Please proceed with your question.

Great, thanks a lot. And congrats on a very nice quarter. So, Greg any color on a framework how you're thinking about gross margin and SG&A for 1Q? And then just maybe more broadly, there are many inflationary pressures across the industry. So, how are you thinking about offsetting those, whether it's transportation, labor or any other headwinds?

Sure, Max, great questions. You know, in terms of, we aren't giving specific guidance, of course, but in terms of gross margin, right, we've continued to see over the past several quarters really nice improvement in full price selling, some of that's been benefited by exclusive brand growth. And part of that has been just being a bit less promotional, whether it's depth of discounting or the duration of the event. So, I would expect that that will continue to expand merchandise margins somewhat, you know, with the help of exclusive brands. So I think that trend will continue. Obviously, the 120 basis point increase in shrink was one time to Q4, I mean, we'd spread that out over four quarters, if you will, to more normalize it. We also benefited, I think, in shrink from having really great customer service. I think our - Jim talked to this, our stores, our field group was really focused on managing that customer connection. And I think that helped us with reducing the external shrink component. You did touch on another piece of gross margin that's probably a headwind and that is freight expense, right. We expect to see increased in-bound freight expense; we saw a little bit of that in Q4. Having said that, we were able to mitigate that expense by some of the things that the e-commerce team is doing in terms of shipping, you know, encouraging the customers to pick up the product at the store, where we can consolidate a shipment and reduce our freight costs. So we'll have good news on the merchandise margin expansion and we'll probably have some headwind from freight. Net, I think will grow our gross margin rates. In terms of SG&A and some of the pressure there, we have seen increased labor costs over the last couple of years, I expect that we'll continue to do that. Again, the field has done a nice job of building a basket and that helps us alleviate some of that wage rate pressure and kind of keeps the labor rate component in check. And we saw some nice leverage in Q4 with the outsized sales growth. Those are the main things. And then finally, in terms of, you know, perhaps vendor pricing increases. I think we'll see some of that. We've heard that from some vendors that they're going to pass along some price or a price cost increases, whether it's cotton or perhaps the resin on the performance of boot or whatever. Again, we would expect to pass that on to the customer. We're not uniquely disadvantaged here, right. And so I think, you know, we'll be able to, again, manage our margin rate at the level we've done in the past, even with those price increases.

Got it, that's very helpful. And then can you provide some more color on things that you're doing proactively yeah to drive strong private brand growth? And then on Just Country, how are you seeing that category evolve over time? And do you think that there could be a new private brand on the horizon? And then just last, you've historically spoken to 10 point higher on merchandise margins, versus national brands? Is that still the case? And as you gain the economies of scale, are there opportunities to maybe increase that by several points over time? Thanks a lot and good luck.

So the EB growth, there's a couple of things, what's happening in the current and in this quarter is, our supply chain has started flowing again. And we're certainly chasing some businesses here and there. But the big difference between the fourth quarter and the first quarter is the exclusive brand team, the supply chain team has gotten us back in stock. And has done that, despite the fact that the overall business had grown in such an outsized manner. I think that coupled with the fact that, you know, we, the stores team is educated on our exclusive brands, they understand the features and functions. They tend to wear the product in the store, et cetera, et cetera. So we put all those things together, you know we really are seeing some very nice momentum in exclusive brands that has continued now for several years. Just Country as a customer segment is really helping us to continue to drive more sales in general, I'll come back to exclusive brands in one second. But we launched that initiative, the timeliness of it was somewhat coincidental, but very fortuitous. As just as people were going out and hiking more and being outside more and wearing more casual clothing, we were launching an initiative that fit that perfectly. So we've seen some really nice early reads on hiking boots, on knit tops of men's and ladies, baseball caps and all for that customer that is maybe one concentric circle, right outside a Western customer, a core Western customer. Your question is spot on, you might surmise that as we look at our portfolio of brands, and we have a Western customer and a Western exclusive brand or two, one is, Men's and one is Ladies. And then we have Work customer and…

Got it. Thanks a lot, Jim. That's very helpful.

You're welcome.

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

Yeah. Hi, thank you very much. Jim, I want to just follow-up just maybe clarify how you're thinking about the business. It seemed like maybe you're signaling and looking at sales on a two-year basis, and really using maybe the trend before the most recent period that you've seen. Yeah, sort of, you know, 20% or so growth on a two-year basis, maybe as a as a floor going forward. So I want to just clarify if that's how you're thinking of things? And then also, when you look forward, what are the events that you're looking forward to whether it's late July or in the summer in terms of some of the social events coming back that can be meaningful.

Sure. So on the first piece, right, if you think about 10% new stores and if we can just ex out of the factor that's come in later in the year, but that would give us not quite 10% new sales growth, right? You know stores are only a portion of total sales and a new store doesn't always open at the average volume of a store. So 10% new stores doesn't give us completely 10% new sales growth. And our same-store sales are underlying same-store sales, which, of course, is the question I think everybody is trying to understand, as are we. You know we have been able to post plus 10 comps in store and better than that online. And our online business may even get stronger once we cycled the sheplers.com pricing in July last year. So, our underlying comp can be you know quite strong as we get through you know the macro impact of some of the things we're facing right now, where the tailwind that we're benefiting from. In terms of events, there's a number of them. I'll give you two or three real examples. The first is one of the larger rodeos. It's not a massive sales driver like Houston or Fort Worth, but one of the larger rodeos in the country every year is Cheyenne Frontier Days. That happens in July, and it's going forward. Now, notably, that's an outdoor rodeo, not an indoor rodeo. So but it's certainly seems to be a step in the right direction. Many of the country music artists, including our partner, Brad Paisley has posted his concert schedule. He is going to be very active over the next several months, almost entirely outdoor amphitheater kind of concerts. But both he and Miranda are starting to play. And I think a lot of the country music artists will you know be much more active than we certainly were in the last 12 months. In December is the finals of the rodeo season. It's in Las Vegas, it drives growth everywhere and a lot of growth in December. So that will be you know potentially more opportunity to grow the business. And then perhaps this is too forward-looking. But as we cycle into the spring of next year, this is where some of the real large events we expect will come back. So the Fort Worth Stock Show, the Houston Rodeo. You know, Houston Rodeo is three weeks long and the entire rodeo season in Texas just has a massive impact on sales. And then we'll get back to cycling festivals in the spring that didn't go forward this year like Stagecoach or CMA Fest in Nashville. And hopefully those businesses will come back online. So there's reason to believe that there's some optimism looking forward. Again, admittedly, you know, business right now is also having - is also benefitting tremendously from some macro factors.

Excellent, very helpful. Maybe a follow-up for Greg. When I look at gross margin, the last two quarters above 35% and overall EBIT margin you know above 13% combining the most recent quarters. Anything in the mix there or the components of the business that's not sustainable from a margin perspective, especially you know given some of the commentary about growing the exclusive penetration and continuing to grow e-commerce profitability? Just how should we think about using the last two quarters as a baseline from a margin perspective?

I think if you look at the merchandise margin, Jon, I think that, you know, we believe that expansion, that the improved full price selling et cetera, can continue maybe not at the pace that ran the last two quarters, but being able to grow it beyond the 25 basis points that we typically call out as it relates to exclusive brand penetration, that, you know, we have seen a benefit in leverage both in the buying and occupancy line that sits within the gross profit. And also in SG&A, we've seen leverage and marketing expense, for example, where we weren't able to - we wouldn't have been able to spend up to the Q4 levels. And frankly, if you look at the Q1 quarter-to-date growth over the two-year period, you know, that's hard to spend at our typical 3% rate at. So I don't think we'll get the same leverage out of buying occupancy and SG&A that we've seen the last two quarters. But we've managed payroll pretty effectively, we've tried to fill open jobs, I would tell you that we've got a tool that helps us flex up labor that we haven't been able to hit those targets, exactly. Part of that is, you know, trying to hire more and more people to meet the demand. So long story short, I think some of the leverage will stick with us. And some of it will be transitory. Again, the marketing we really do want to earmark, call it, 3% of sales as a spend and in Q4 and Q1 we didn't - in Q4, we didn't do that and in Q1, I don't think we'll be able to spend to the growth we've seen. But again, labor and corporate overhead those things as we're able to grow sales in an outsized way, we'll get leverage.

Okay, very helpful. Thank you.

Thank you.

Thank you. Our next question comes from the line of Janine Stichter with Jefferies. Please proceed with your question.

Hi, everyone and congrats on the incredible momentum. Want to ask a bit about the inventory. I think you mentioned you're doing more of your own fulfillment versus I think you'd typically do a lot of drop ship. Maybe just talk a little bit more about that. Are there any margin implications there anything we should think through in terms of the impact as the balance sheet? And then secondly, was just curious about the Sheplers' rebranding, I think that was a quarter or two ago, I'm just curious where that stands. And if that's still a headwind to e-com, considering the growth you've already seen?

Okay, on the first piece, on even today, there's really two pieces as to what we did differently in our supply chain. The first was, because we have a fair amount of product that is low fashion quotient by replenishment. We sort of pre-bought some of that and brought it into our distribution center, which, as you well know, Janine is that how we typically handle third-party goods, typically, they go directly from the vendors' distribution center to our stores. But as we started to see the business accelerated, which is a couple of our bigger vendors and said, let's just you know really be secure with our supply chain, their ability to stay in stock in the stores and we brought that product into our stores' distribution center. I think that is somewhat of a temporary move. And it also wasn't all of our vendors. It was just a couple of them. But having done so and then competitive shopping from other stores we're seeing that where we have a veteran stock position then lots of other people in our industry based on the fact that we did that. The second piece and you called out drop ship. When we sell products online to the customer, it's coming from us to them. Historically 25% of the time, roughly, that product would be ordered on bootbarn.com or sheplers.com and we shipped to them from the vendor. We've expanded our Wichita-based fulfillment center, we've added automation and we've just got a really well-oiled machine there. So we have added and broadened the assortment that we carry in Wichita, and we've taken that 25% drop ship down to basically in half, roughly 10% or 12%. The margin implication for us is it's actually more profitable, because our vendors would charge a drop…

Okay. And just as you think about the difference between shelpers.com and bootbarn.com, I always thought shelpers as being the more promotional site. What do you think is like the biggest point of differentiation? Are you seeing more cross shopping between the sides? Or at some point do you think most customers should ultimately migrate to Boot Barn? How do you think about what Sheplers kind of stands for now that you've rebranded it that?

Sure. The rebranding went back to its roots, which was sort of real, hardcore Western, its focus is a bit more denim-based and apparel-based at Boot Barn. It skews more male, it skews a bit older. And there are, of course, some overlaps between the two brands, but less than you might think, in terms of the pricing, we like the fact that we have a brand that if we needed to match in a rational competitor, I guess that's you need to be critical, matching a competitor's pricing that is lower than our stores pricing, we can chase them down with a different brand, i.e., Sheplers. And matching the bootbarn.com pricing. And therefore not have a big disconnect between bootbarn.com in the store. So that strategic benefits still exists if we need it. We haven't seen a lot of what I would call, irrational pricing behavior in the industry, in the business, which is great. But we do have Sheplers to try to cover it if it were to come.

Great. Thanks for the color.

Thanks, Janine.

Thank you. Our next question comes from line of Peter Keith with Piper Sandler. Please proceed with your question.

Hey, guys. Thanks for taking the question and great results. Maybe just a follow-up, Jim, with you on the gross margin dynamics. So the merch margin expansion just tremendous. We think that this is - this changes the structural in nature, largely attributed to the dynamics at the Sheplers or is there some carryover effective at Boot Barn and as you mentioned, it's a pretty rational environment and maybe looking forward a year or two as promotions picking up the Boot Barn margins could be under a bit pressure from where they've been?

Well, let's just isolate the different pieces of your question. We had a very, very strong margin rate improvement in the quarter, you know, Greg called out 200 bps of leverage on the gross margin line, a 120 bps of improvement on the merch margin line. So you know, those are, you know they're not merchandise margin, which I think is the spirit of your question. What's driving the merchandise margin on a consolidated basis, both stores and the e-com is, we continue to back off on large sales and clearance promotions. And we're either going less deep or shorter duration or a narrower part of the store being on sale. And as you well know, Peter, the vast majority of our sales are at full price. And we're just continuing to increase that. We are very clean from an inventory standpoint as clean as we've been in years. So our clearance inventory, which is relatively small, always is even smaller and I think that will continue for some time, particularly with the top line sales being as strong as they are. And that leaves exclusive brands and our exclusive brands have really started to show strength in this quarter. We're quite pleased that we're back to 250 bps plus penetration growth versus last year. And I think the outlook there is strong, and that will continue to give us margin rate improvement going forward. So we tend to fall backward - you know, right back to our long-term algorithm of if we can increase exclusive brands by 2.5 percentage points that drives 25 bps of merchandise margin enhancement, we tend to then give ourselves a slightly higher target. And frankly, over the last few years, we've jumped right past both of those targets in terms of merchandise margins, because our full price selling has exceeded our expectations. So, yeah, that might get a little bit harder to lap, but I don't think, I don't envision a quarter in the near future where we come out and say we've lost 100 basis points of merchandise margin because of pricing pressure or increased sales or higher promotions than a prior year period. I think that would be maybe not impossible, but pretty unusual.

Okay, that's a good answer. Secondly, I want to - I dig into the comments on the Northeast goers, just three years, there has been skepticism on the Boot Barn model moving into the Northeast. So you talked about the store productivity metrics, looking pretty solid, you've got the 4 stores in Pennsylvania. Now, when you're opening up in the northeast, are you having to make any changes to the sales mix? Or do you see any differences in the sales mix with these northeast goers versus the rest of the base, or they put a right mind with everyone else.

At a high level, there's very little difference. Now, if you were to walk through the store with the Boot merchants or the Apparel merchants, you'd see some differences in aesthetic. But Western still outsells Work in those parts of the country. We're seeing a really nice business in our ladies apparel business, but that's still a relatively small business in the grand scheme of things. So the nice thing is the model that we have that works across 30 plus states is working up there with pretty minor adjustments. As you will recall, the Boot Barn brand name had some recognition in that part of the country even seven years ago when we're taking the company public and you had done that study. So I think we're benefiting a bit when we open up a store that some number of customers in that part of the country have heard of the brand. And you know, they're coming in and while conventional wisdom might be that you're not going to sell Cowboy Boots and Cowboy Hats in Pennsylvania. We are seeing that customer show up in there absolutely buying Cowboy Hats and Cowboy Boots.

Okay. That's also a good answer. So yeah, thanks for remembering the study a long time ago, but I'm sure that the trends still hold up. So keep up the good work.

Thanks, Peter.

Thank you. Our next question comes from the line of Sam Poser with Williams Trading. Please proceed with your question.

Thanks for taking my question, I have two. Regarding the supply chain, which - what percent of your goods are coming from the Americas now, because you got a lot of boots and stuff coming out of Mexico? And how impacted are, and then you have a lot of denim that also comes from the Americas, I think. So what percent of your order flow is impacted by like the Port of LA and coming from Asia?

Sam it's Greg, really good question. And I think it was our last 10-K we disclosed that about half of our merchandise comes from China and I don't think that's meaningfully changed. About a quarter of the merchandise comes out of Mexico, whether it's leather soled boots or denim, things like that. And the balance is US and perhaps, you know, some other countries, but a lot of our supply chain comes through the ports in Southern California. We're pleased that that seems to be getting more on track, there are still delays. But I think those delays have, you know, have gotten better by 50%, if you will. So, we feel pretty good about that. And we continue to chase after product and protect the supply chain. But so far, I don't think it's had any mean meaningful impact on our top line.

Thanks. And then secondly with the 40% comp you ran on the bootbarn.com business? And you're - you'll get an inventory question from me, because I never can resist.

You know it is disappointing that you didn't, Sam.

Yeah, I understand that. But I mean, I guess my question is, what were the learnings you got from sort of seeing what people actually go to online? And how is that impacting the way you assort the stores now? And now that you're running with, as you mentioned, your inventory levels, you know, on a store base - on the store-by-store basis are relatively low? Is this - do you want to build them back? Or is this a, you know, are you at a good point here, where you're taking learnings from online and applying it to the stores and then being able to achieve your objectives with slightly less inventory?

Yes, you're absolutely right. We have the ability to get reads online and feed those learnings over to our store merchants. And as we see things emerge on e-commerce business, we then either bring them to the stores or expand them more quickly than we otherwise would. And the other things we're excited about is more and more, we have the ability to fulfill our e-commerce demand from our stores' inventory. So, one thing where we're thinking about is, can we bring some more of the more exciting merchandise into some stores, and use it as a mechanism to drive a better in store experience. And even if it were to turn relatively slow in store, we can then sell it down using our e-commerce channel. So both of those things are in play. In terms of overall inventory levels, so we're trying to get back to where we were. I would say we've learned that we can grow you know really top line business on a little bit less inventory. With that said, we do wish we had or maybe not down 8.7% or something like that. But you know, down 5% versus last year, on a comp store basis might be fine. So what we - as you know, we have a philosophy as, we always want to be in stock with all sizes, particularly in footwear, and you know that requires a healthy inventory investment. So we probably can run a little bit leaner than we had in the most recent few years.

Thanks very much and continued success.

Thank you, Sam.

Thank you, Sam.

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

Hey, thanks, guys. Jim, on the last point, just talking about inventory. Are there any places where new categories specifically where you feel more constrained than others? Or maybe even the other question, you know what is there a point in time you see that there may be some constraints just based on your ability to replenish goods in certain categories? And if along the same you know line, talking about inventory, just how do you plan to manage inventory as we kind of think about the quarters throughout the year? Thanks.

So in terms of the different categories of the business. So the good news is, that the big drivers of the business are number one, either entirely in stock or mostly in stock. And number two, have an easy substitution effect, right. So Work Boots, Blue Jeans, Men's Cowboy Boots, maybe Cowboy Boots, maybe to somewhat lesser extent, our number one, our inventory position is pretty good. Maybe we have some opportunities here and there. But in material, if someone comes in and they're looking for a particular lace up Work Boots, and we don't have exactly that one, there's a very logical substitute for it. And by the way, I do need to call out that this has been a result of an enormous amount of Work by the buyers, chasing orders, you know, you know putting orders back in place after sometimes those have cancelled them, et cetera. So, they are working to make this happen. And I think it's part of the reason why our results seem to be outpacing the industry's results. The businesses that are, and the buyers and the merchants who are working even harder, are the businesses which are smaller for us. But more important, which is sort of ladies fashion apparel, again, you know, it's a smaller piece of our business. But that business has performed extremely well. It tends not to be on automatic replenishment. So we do have to make commitments on somewhat of a more traditional seasonal basis. And we just were not able to forecast the strength of the business that we're seeing in the first quarter or even in the fourth quarter. And frankly, if you even go back to the third quarter call, we saw some real nice strength in ladies apparel. With that said, through sort of hard work and a lot of agility, we've had the ability to find new vendors and get them that product in place. So that business continues to be very strong. But that's the one place that we had some exposure. But we've been managing through it by frankly, just by hustling like crazy to find that product in different places.

Got it. And then, Jim, I don't remember the last time you gave us the number, I think to remember maybe it was a couple years ago, you talked about 95% of your assortment that sold at full price or you know, outside of any promotion. Let me know if I'm misremembering that, but I'm kind of curious just you know how low did that number ever get to? And where are we now?

So yeah, we tend to words like the vast majority, because it becomes a little complicated to nail down a particular number, but it's, you know, I would say it's 75% plus of the store's business, you know, Sheplers used to be highly promotional is less so now. So I would say you know, even on a consolidated basis, we're probably north of 75% to 80% of the business. You know, the balance is all the clearance product and occasional product promotion that we're running for Mother's Day or for Father's Day. How much smaller can that get? I think we'll always want to have some promotional activity in the stores, just A, that customer does exist and sometimes looking for a sale. And it also gives us the ability to show some freshness by rotating through some items, you know, in one month that might be on sale and some items in the next month that might be on sale. And perhaps one third thing that might remain in our DNA for a time is, oftentimes when we're trying to launch a new category of our exclusive brands, in order to try to get faster trial. We'll do some kind of modest promotion to get you know Cody James jeans into people's closets. So if the question around the question is, do we have ongoing opportunity to do even a better job of more full price selling? I think the answer is yes. I think we'll get you know, diminishing marginal returns as we go forward. But I don't think we're out of ideas.

Got it. Thank you. Good luck.

Thank you.

Thank you.

Thank you. Our next question comes from the line of Mitch Kummetz with Pivotal Research. Please proceed with your question.

Yes, thanks for taking my questions. I've got two on the sequential improvement of the business. So you guys, I think you said plus 67% quarter-to-date on a two-year and then for Q4 it was a plus 34%. I guess my first question on that is, that plus 34%, is there any way you can give us the breakout by month it sounds like there was a lot of things happening in the quarter. And I'm just kind of curious how those months worked on a two-year basis? And then I've got a follow-up.

Sure. So you're right you called out the numbers perfectly from Q4 into Q1, on a two-year comparison basis in total net sales gone from approximately plus 34% to plus 67%. In terms of sequential improvement between the quarters, everything has improved. Basically, the one business that continues to be negative is, FR Work Apparel. In terms of, if you want to break it down to monthly sequential two-years, it gets a little messy, but the quick answer is, we've seen sequential improvement from February to March, March to April and then a slight sequential deceleration from April to May, which is in the earnings release. The messiness comes in February, in March of fiscal 2021. We didn't have rodeos. And in February and in March fiscal 2019, we did have rodeos in Texas. And that's meaningful enough to register on the total sales basis. So we've seen a really nice progression, very nice sequential improvement. Part of it is overstated. A small part, admittedly, by the fact that rodeos existed two years ago and didn't exist this year, during February, March in Texas.

And Mitch, I just want to -

Yeah.

Mitch, I just want to clarify. I think you said 34%, our total growth in Q4 was 37% to the prior year.

I was looking at that two-year, I thought it was 34%, I calculated as 34%.

Okay, got it. Sorry -

But anyhow, my second question, just again, as it pertains to the sequential growth. Is it fair to say that the bulk of the improvement is happening in these discretionary categories, categories that might be more dependent upon social interaction? I'm just trying to understand, you know, is the money flowing to discretionary, because it's stimulus dollars that tend to be used? I mean, that's discretionary income and people are spending it? Or is it more because we're kind of starting to enter a post-COVID environment and people are interacting socially again. And so those dollars are flowing to those categories that have been depressed for the last year? How do you see that?

So I think the second piece of what you said is a huge factor. I think people are just refreshing their wardrobes. You know, there's some conversation around the need new sizes, up or down, do not pass in judgment, Greg. But there's also just the, you called it, right people are going out more, people are going to restaurants more, they're going out to bars more and they're wearing, you know, our core customer, wears our product, and they want new outfits. It's plain and simple. A part of it is certainly stimulus. I'll just tell you the way we think about it internally is, we saw the jolt of stimulus in the third or fourth week of March. And it was a jolt, it was a very positive jolt. And immediately the next week, the business came down slightly, but that has kept pretty close to that level for the next five or six weeks. So stimulus is in the system, for sure. But it seems to be more than that now, given the duration of the strength of the business. And it just seems to be more macro consumer trends, you know, people buying new pairs of pants and new footwear. You're right, that if you want to really parse out the sequential improvement, Work Boots, why is it strong and is still strong and slightly stronger, but the other categories a more discretionary categories are having improved pretty significantly over that period.

Okay, that's helpful. Thanks, guys.

Thank you.

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

Thanks and congrats on the tremendous performance. I wanted to come back to the gross margins for a second here. And you know, the improvement in shrink caught my attention just for the magnitude of it. 120 basis points, I think you called out. In terms of thinking about sustainability of that, you know, that's a pretty high year-over-year change in shrink. Is that something that you feel like the rest of, you know, fiscal '22, that you have some gains you can make on that? Or is there something maybe specific in that quarter that allowed such a large gain?

Really good question, Jeremy. The way I think about it is, in the first half of the year, our store sales were somewhat depressed, right, more depressed than the first quarter, than the second quarter. And our teams really took that opportunity with reduced customers in the store to provide outstanding customer service. And I think that that helps us manage our shrink levels, right. And so I do think a piece of that was opportunistic, they made the most of the customer traffic that came in the store. And so that may not be as repeatable. But if I were to parse out, you know, how much of the 120 relates to that, it might be 20 basis points or 30 basis points. The balance has been really, you know, just being focused on both, I'll say, paperwork and, you know, all that paper shrink stuff as well as you know, again, outstanding customer service and paying attention to people, you know, turning in the known facts, all those kinds of things. So, I think a lot of that sticks with us as we move through fiscal '22.

Great. And then, you know, in terms of thinking about channel performance, you know, moving forward, you talked a little about Sheplers and the dynamics there. But, you know, in thinking about the outperformance that you've seen retail same-store sales. You know, in the March quarter, there's obviously some dynamics here in the current quarter. But in terms of thinking about the back half of the year, when, you know, all your stores will be you know wrapping periods in which they were all open. Just thinking about that and expectations around which channel of this, that you expect to be higher in the back half, you know, of this year? You know, how should we be looking at that? You know, do you think that retail stores are going to continue to outperform? And if so, why?

Okay, very good question and it's great pointed out where we're trying to avoid providing real guidance on sales, because it's just so complicated with so many macro factors. I think we can give you some color commentary on that. First, just a small point of clarification. I mean the retail store business versus e-com business yeah retail stores will still be 80:20 versus e-com, retail stores will continue to be that majority, of the business, I think you're asking about the growth rate, which I'll address.

One other minor point for the benefit of everybody listening on the call. Our stores were opened last year now business was depressed in many markets. But one of the things that in fact enabled us to capture new customers and build our market share is the fact that we stayed open in most markets, not every market, but every market that we legally could, we stayed open. You're right to call out that the retail store business will start to cycle stronger comps as we go forward. On a consolidated basis, in the second quarter, we cycle a minus 5, 5.1 something like that. So if unless something changes massively, we should be able to outperform in the second quarter. In the third quarter, we returned to positive comps. And if you went back through our third quarter call, I think we're a plus 5-sih, 4.6. And we actually had positive retail store comps there, low single digits, but notably that was on negative transactions. So I certainly do not have the ability right now to project what's going to happen in the holiday period of this upcoming year. But if this were sort of a normal year, I'd say you know, we have from a stores perspective, we have a relatively straightforward compare in LY period. When we get to the fourth quarter of this year, it gets much more complicated, right. We had stimulus driving growth in January and stimulus driving growth in March, the offset to that pressure will be hopefully a full and vibrant rodeo season in Texas, that's going to be very hard to parse out. But I must say, been very hard to cycle our March business with a positive comp and our March business was so incredibly strong. But we'll still have on an absolute dollar basis, a very healthy, very profitable month, of course. So that's the best I can do to give you a sense for how we view the upcoming quarters from the storage perspective. The e-commerce business is cycling, strong business, but pretty consistent quarter-to-quarter from a growth rate perspective.

That's helpful. Keep up the great work, guys.

Thanks, Jeremy.

Thanks, Jeremy.

Thank you. Our next question comes from the line of Jay Sole with UBS. Please proceed with your question.

Great. Thank you so much for taking my question. Jim, I just wanted to ask you about some of the actions you took. It sounds like a couple of months ago about positioning inventory and maybe just changing that some things by doing the supply chain to be ready for, you know, this moment where stimulus got, you know, was a big help and the consumers came back. What was the insight that you had into your consumer that gave you confidence to take those actions and do things differently than maybe you had done in the past? You know, ahead of, you know, January, February, March and April sales?

So the insights into the customer it's a good question, you know, we do have a customer that needs our product is more you know oftentimes has functional reasons for buying our product, et cetera. So we did see some strength building earlier. I'd say the other thing, though, and this is the bet that we made, but it was a bet with a low downside risk, which was given the fact that so much of our product is replenishment based and low fashion and low markdown risk. And many other retailers were particularly mall-retailers were slower to get customer traffic perhaps being no fault of their own. We said well, let's just kind of be aggressive from an inventory standpoint and buy into to a stronger than perhaps expected sales trend and it just it turned out to be - it turned out to just work out really well. And again, the credit really goes to the merchandising team that made that happen. But it was sort of an easy bet to make, I guess, all I'm saying is, because if it didn't work out, all we would have had is a slower inventory turn, not a huge margin rate degradation. And you know on the second part of it, all we did was take some vendors' products into our distribution center to make sure we had total security that we could stay in business in the stores. And that has worked out really well as well. I do think we'll transition out of that pretty quickly. That's not our model, but we have the space to do it. We have a team that could step up from a distribution center standpoint, and get it done. So and we brought on some of their product.

Got it. Okay, thanks so much.

Thank you.

There are no further questions at this time. I'd like to turn the floor back over to management for closing remarks.

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

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation and have a wonderful day.