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Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Good day, everyone and welcome to the Boot Barn Holdings Incorporated First Quarter Fiscal Year 2019 Earnings Call. As a reminder, this call is being recorded.
Now I would like to turn the conference over to your host, Mr. Jim Watkins, Vice President, Investor Relations and external reporting for Boot Barn. Mr. Watkins, please go ahead.
Thank you. Good afternoon, everyone. Thank you for joining us today to discuss Boot Barn's first quarter fiscal 2019 earnings results. With me on today's call are Jim Conroy, our 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 in the Investor Relations section of the company's website.
I would like to remind you that certain statements we will make in this presentation are forward-looking statements. These forward-looking statements reflect Boot Barn's judgment and analysis only as of today and actual results may differ materially from current expectations, based on a number of factors affecting Boot Barn's business. Accordingly, you should not place undue reliance on these forward-looking statements. For a more thorough discussion of the risks and uncertainties associated with the forward-looking statements to be made on this conference call and webcast, we refer you to the disclaimer regarding forward-looking statements that is included in our first quarter fiscal 2019 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'll now turn the call over to Jim Conroy, Boot Barn's President and Chief Executive Officer. Jim?
Thank you, Jim and good afternoon. Thanks everyone for joining us. On today's call, I'll be proving a review of our results and an update of our key strategic initiatives. Greg will then review our financial performance in more detail. Following Greg, we'll open the call up for your questions.
We're very pleased with our start to fiscal 2019. Our first quarter results were up significantly on a year-over-year basis and exceeded our expectations. Our recent performance reflects the successful execution of the strategies we have put in place over the past several quarters and a more favorable macro-environment.
Consistent with the fourth quarter of fiscal 2018, same-store sales in our retail stores grew almost 10% and our e-commerce sales grew double-digit contributing to a same-store sales increase of 11.6% on a consolidated basis. Strong sales combined with a 140 basis point improvement in merchandise margin and $0.09 of tax benefit from stock option exercises, grew our earnings per share of $0.24 in the quarter.
During the quarter we continued to make further progress across each of our four growth initiatives, which I would like to highlight for you now. Let's begin with driving same-store sales growth. The first quarter marked the fifth consecutive quarter of positive same-store sales in our retail stores.
The stores business continued the strength that we saw in the fourth quarter with broad-based growth across the country and outsized sales growth at our stores in Texas. Once again, every major product category posted positive results for the quarter with particular strength in work boots and work apparel, followed by men's and ladies western apparel and modest growth in western boots.
From a marketing perspective, the upgrade of our creative aesthetic, coupled with changes in our media mix is producing great results. We continue to develop a curated product assortment and tailored marketing message to target each of the customer segments of Core Western, Work and Wonder West, which is our fashion customer.
Driven by our CRM analytics, this segmentation allows us to be more efficient in our marketing spend and more effectively connecting our brand message with each of our customers. We've extended this segmentation across all marketing media for traditional and digital.
We've also been involving our merchandising to align with this new strategy. Our merchants are now developing assortments consistent with the segmentation strategy and bringing that to life in our stores. For example while we historically with merchandise the apparel in our stores primarily by brand, you will now see many in-store displays that integrate merchandise for multiple brands, which are intended to target in our core Western customer or a more fashion-oriented customer.
Additionally, over the next few weeks we will be launching Wonder West online to enable our fashion-oriented customer to shopping more additive assortment of merchandise as well. From a store operations perspective, we continue to see the benefits of our store associate training platform. Our field leadership team is using this platform to deploy training to our store associates in order to improve customer service and drive key performance metrics.
We are also in the process of improving the consistency of our branding by streamlining our in-store signage and upgrading our visual merchandising.
Moving to our second initiative, strengthening our Omni channel leadership. Sales in our e-commerce business increased double-digit in the quarter. In addition to this positive sales trend, one of our objectives this year is to improve the financial contribution of our e-commerce site by increasing the penetration of private brands online, improving marketing return on investment, eliminating unprofitable and low margin items, reducing drop ship fees from our vendors and driving efficiencies by reducing unnecessary or duplicative overhead costs.
We made good progress on this during the quarter and expect it to help drive a healthier e-commerce business going forward. Organizationally we've now centralized our e-commerce team into our store support center in Irvine, California, which we expect will allow us to work more effectively and efficiently.
As a reminder, all of our e-commerce sites now have access to a common inventory that is managed by one integrated team. During the past several months, we've made progress in improving our e-commerce operations by installing a new warehouse management system, material handling conveyors and product carousels.
We expect to finalize this improvement in the coming weeks, which have enabled us to be fully prepared for the upcoming holiday sales search. Now to our third strategic initiative, increasing the penetrations of private brand portfolio.
We remain focused on continuing to improve our private brand offering by developing high-quality product to complement the great assortment offered by our third-party branded vendors. For the first quarter, our private brand penetration increased by more than 250 basis points year-over-year and represented 15% of our total sales.
Cody James and Shyanne remain strong with our customers responding very positively to our recent deliveries of both boots and apparel. Cody James continues to hold its place as our number three highest brand and Shyanne has now moved up to number four in the company.
In early September we will launch Idyllwind fueled by Miranda Lambert, a new line that has been developed in conjunction with the country music artist. Miranda and her team have been tremendous partners over the past several months as we've worked to design and develop an outstanding product line of boots, apparel and accessories.
We view Miranda as the number one female country music star in the world and feel that her brand coupled with our personal authenticity is a natural fit with Boot Barn and our customer base. We will be supporting Idyllwind with a comprehensive launch plan that includes a broad reaching marketing campaign, new in-store pictures and signage and an employee ambassador program.
Our marketing plan is intended to attract new customers to the Boot Barn experience while also offering something new and exciting to our current customer base. We're also very excited about our new exclusive work brand that we'll introduce this fall.
Subsequent to the fall launch we will roll out additional styles throughout the balance of the fiscal year as part of a growing assortment of premium work boots, apparel and accessories.
Finally, our fourth initiative expanding our store base. We continue to see attractive returns on new store openings and remain confident in our ability to double our store count over the next several years. As we talked about on prior calls, we are augmenting our new store opening process by adding tuck-in acquisitions that we execute opportunistically.
We've now completed the acquisition of Woods Boots, Lone Star and more recently drive sales. The payback on new stores is tracking in line or better than our expectations. While still early, these tuck-ins have helped us develop a successful blueprint for future acquisitions.
We've learned that a combination of new store openings and acquisition of stores from local operators can drive meaningful sales growth and allow us to quickly get a foothold in new market. We plan on utilizing this approach as we look to grow new units by 10% annually.
We continue to believe that new store development and acquisition of existing stores, present great opportunities for us to grow both sales and profitability.
Turning our attention to current business, through the first five weeks of our second fiscal quarter, our consolidated same-store sales are tracking slightly above 10%, for sales in our retail stores and online both performing well. We feel good about the underlying strength of the business and are well-positioned to achieve our top and bottom-line targets.
Now I'd like to turn the call over to Greg Hackman.
Thank you, Jim. Good afternoon everyone. In the first quarter, net sales increased 16% to $162 million. As Jim mentioned, sales growth was driven by an 11.6% increase in same-store sales and the sales contributions from the addition of 14 stores over the past 12 months.
During the first quarter, we added six stores including three acquired Lone Star stores in Texas bringing our store count at the end of the quarter to 230 stores in 31 states. Gross profit increased 24.3% to $51.4 million or 31.8% of net sales compared to gross profit of $41.4 million or 29.7% of net sales in the prior year period.
The 200 basis point increase in gross profit resulted from a 140 basis point increase in merchandise margin and 70 basis points of leverage in buying an occupancy cost. Operating expense for the quarter was $41.6 million or 25.7% of net sales compared to $36.5 million or 26.2% of net sales in the prior year period.
Our income from operations was $9.8 million or 6.1% of net sales in the quarter compared to $4.9 million or 3.5% in the prior year period. Net income for the quarter was $6.8 million or $0.24 per diluted share, which includes $0.09 per share of tax benefit related stock option exercises.
This compares to net income of $800,000 or $0.03 per diluted share in the prior year period when compared to our guidance of $0.10 to $0.12.
Turning to the balance sheet, our inventory decreased approximately 2% on an average comp store basis compared to last year. On a consolidated basis, inventory rose 6% to $204 million compared to a year ago. The increase was primarily driven by an increase in our warehouse inventory used to support our merchandise purchase at a volume discount, our exclusive brand initiatives as well as inventory for stores added over the last 12 months.
As of June 30, 2018, we had a total of $204 million of debt outstanding, including $31 million drawn on our $135 million revolving credit facility. We had $7 million of cash and our net debt leverage ratio was 2.8 times.
Now I'd like to turn to our outlook for fiscal 2019. We continue to expect same-store sales to grow mid-single digits and have raised our EPS outlook from a range of $0.92 to $1.02 per share to a range of $1.04 to $1.14 per share based on an estimated weighted average diluted share count of 28.8 million shares for the full fiscal year.
This represents income from operations of $54.0 million, $57.9 million. We now expect net income for fiscal 2019 to be between $29.9 million and $32.8 million. As we look at the second quarter of fiscal 2019, we expect same-store sales to increase high single digits.
We estimate second quarter net income per diluted share to be in the range of $0.07 to $0.09 per share compared as compared to $0.04 last year.
Now I'd like to turn the call back to Jim for some closing remarks.
Thanks Greg. We're very pleased with our first quarter results and the positive momentum that has continued into our current quarter. We continue to be confident in our ability to execute on our four strategic initiatives to drive growth in the current fiscal year and over the long term.
Before we wrap up, I would like to extend my personal gratitude to the thousands of associates in the stores, distribution centers, call center and Irvine office for their hard work and continued dedication to the company. Our recent performance is certainly a result of your efforts.
Now I'd like to open up the call to take your questions. Christy?
Thank you. [Operator Instructions] First we'll go to Matthew Boss from JPMorgan. Your line is open.
Congrats on a nice quarter guys. So -- on I guess first question on the gross margin front, can you just break down the 140 basis points of merchandise margin expansion maybe between full price selling and private brand expansion and just the best way to extrapolate the first quarter margin drivers for the remainder of the year?
Matt it's Greg. Call it roughly 100 basis points of the 140 was from more full price selling and roughly 40 basis points was private brand. We talked about this on our Q4 call that we were looking at our commissions and making sure that those promotions were delivering a sales mix that we wanted and if they work, we were paying a little less fee and promoting and we saw 100 basis points of expansion last year in Q4 and again we've been doing some work throughout last year.
We started that initiative in Q2 of last year. So that 100 basis points of good news if you will becomes much tougher this year for example last year in Q2 our margin was higher by 140 basis points compared to fiscal '17 Q2. So that's going to be difficult.
So we continue to think that margin can expand roughly 40 basis points on a year and that will be driven by the work we're doing with increased penetration in private brands as well as the work we're doing on e-com where we're raising prices a bit to make more money.
We also have some pressure from things like freight. We purchased two new companies this year, drive sales in Lone Star. Those two store chains or those chains have lower historic margins to Boot Barn and so it will take us a bit of time to get our private brands in there and get the prices up. So there's some headwinds there, but we continue to see margin expansion for the year.
Great. And then just a follow-up, I guess when you speak the trends that you're seeing in oil and gas regions maybe versus some of your more mature markets and Jim larger picture, do you still see 10% of the fair multiyear operating margin target for the business over time?
Yeah I'll take the first and Greg can circle back to the EBIT margin rate and the business has been strong now for two consecutive quarters across the country. Every region, virtually every district had posted positive same-store sales.
The technique has been a bit better than the remainder of the business and I would ascribe some of that to a healthier oil and gas environment and in terms of product categories, if you want to triangulate that growth, we have seen a nice pickup in work boots, specifically work boots used in oilfield as well as at FR apparel which is often used in the oilfield as well.
So I think that's a nice tailwind for us, but even if you were to strip that out, the rest of the business has performed very nicely for two consecutive quarters. In terms of the EBIT margin rate, Greg will take that.
So Matt, last year, we grew our operating margin 60 basis points to 6.8% of sales and if you look at our guidance range, I think you get back into a number that would get you to roughly in the mid-7s. So call it another 70 basis points and there's nothing structurally that prevents us from continue to expand that operating margin rate toward 10% or get to 10%.
That's great. Best of luck guys.
Thanks Matt.
And we'll go next to Jonathan Komp from Baird. Your line is open.
Yeah. Hi. Thank you. First question I want to ask just dig in on the same-store sales trends a little bit more given the strength so far in the quarter Q2 to date, how do you think about projecting the business. I know you mentioned still running up north of 10% guiding to high single digits for the quarter and only mid-single for the year. So any updated thoughts on the thinking behind that?
Sure. We feel really great about two consecutive quarters plus the month of July being really solid both online and in the stores and our same-store sales trend just continues to be very, very strong with store promotions and an improvement in merchandise margin rate that Greg had alluded to earlier.
As we look forward, we do be a bit prudent with how we project the business from a sales perspective, I think everybody recognizes that as we get into Q3 and Q4, the year-over-year comparison gets more difficult in Q3 and much more difficult in Q4.
We are continuing to pull promotions off the counter. So even if our sales trend stopping a little bit in any cases it's a more profitable business that we're getting. In our e-commerce business, we're seeing really nice pick up in the profitability of that piece of our business as we raise some prices and illuminates promotions.
So I think if I would summarize, it will certainly be a little bit conservative and prudent with our same-store sales guiding acknowledging that we have a steeper incline as we go through the third quarter and the fourth quarter.
If you took a more bullish view, we did get hurt in the second quarter last year a little bit by the hurricanes Houston. So we'll be cycling that. We also had difficult business as we got into Christmas time in e-commerce. So we'll be cycling that and we're very excited about the launch of Idyllwind and the upcoming private brand for work that all those things that take our additional ammunition for us to drive more same-store sales as we look at the business going forward, we just want to kind of put out a number than we feel good about and we know we're wrapping more difficult comps for the back half of the year.
Got it. Understood and then maybe as a follow-up, when I look at the updated operating profit targets for the year, it looks like you essentially got a roughly for Q1 upside and maybe didn't change the remainder of the year in terms of the outlook. I just want to clarify if we're thinking about that correctly and if there's any moving parts to call out from a profitability stand part?
Jon it's Greg, and you're actually right. We worked through the Q1 beat, we thought Q2 when we develop our original guidance would be high single digits and we got it planned and so nothing has really changed from when we did guidance other than the beat in Q1 at this point.
Great. Okay. And maybe last one for me just sticking on the full-year outlook, if you were to show upside for the year versus your comps guidance, any kind of guardrails in terms of how you think about the incremental flow through on any sales failed upside as you look to the balance of the year.
We tend to look at our flow through of roughly 30% on incremental sales given the margin structure and the expense structure and so that's how we target flow through. Does that help?
Great. That's helpful. All right. Thanks guys.
Thanks Jon.
And next we'll go to Peter Keith from Piper Jaffray. Your line is open
Thanks. Good afternoon. Nice results guys. Greg, I had a cash flow question for you. You guys really -- executive cash flow in Q1 of the $20 million year-on-year increase. I was wondering if there's anything in there we could think about rolling forward or it was just purely a function of timing.
We did get pretty good leverage on our inventory growth meaning we had pretty good leverage with payables. We did benefit from stock option exercises in Q1 to the tune of about $5 million, but aside from that I think it's normal operating performance.
And on that inventory leverage, is there -- is there anything we should think about that continuing going forward or could it be hindered it a little bit as you're trying to drive more the directive as to your own fulfilment center?
Yeah I would say that we'll continue to get leverage on our inventory purchases. We probably had a little bit outsized leverage this quarter just given robust sales right, pardon me. So you know I think you can model some of this but not all it.
And Peter to your second point about inventory mortgage and performance center to eliminate from vendors that is certainly an objective to this year. Having said that in the grand scheme of our overall inventory levels, that incremental piece is virtually materially. It's a very small number on our entire inventory balance.
Okay. Very helpful. And lastly and maybe more strategically for Jim, with the customer segmentation analysis that you're running now with the core Western work and then the Wonder West, is there a feeling now that maybe one of those you're seeing a lot of better leverage or one of those that's getting a little bit faster traction than the others. I am curious that where you may be seeing some upside surprise.
Yes I think if we look at this historically, we had always thought about Western and Work being different and we started to see across the merchandizing hierarchy and our analytics, we started to see this more fashionable, slightly younger, more female oriented customer emerge. So we split off Wonder West and if we look at those three business today, the work business is a pretty large business and growing extremely nicely, which we called out now a couple of consecutive quarters.
I think the core Western business has decent grown, but the Wonder West business has really been a nice upside surprise if you went back to our calls, you would see that ladies western apparel had been a drag in our past quarters had the margin impact in past quarters and if I look at that business now our ladies western apparel business is comping extremely strongly much higher than company average, the margin rate is greatly improved and all of that is thanks to the segmentation of Wonder West to the great right buyer, a couple of different buyers in that particular part of the business that have put some fantastic assortments together.
Our marketing in that area feel really strong about and I think the analytics of our database has been able to really go after that customer with a very specific and curated assortment, tailored marketing message or much more active on social than we had ever been with that particular customer group.
So I think that has been a really nice upside surprise and we're excited to see the launch of Wonder West online over the next couple of weeks both has its own separate URL as well as part of the bootbarn.com. So that's been a really nice emerging piece of our business and we're excited to see how much that could grow going forward.
Okay. That's great feedback. Thanks a lot and good luck.
Thanks Peter.
And next we'll go to Janine Stichter from Jefferies. Your line is open.
Hi guys. Good afternoon. You mentioned tuck in acquisitions being a part of this growth strategy going forward. Is there any percentage you could give us potential number of units you could potentially grow by local players. How we should think about the stores very supply stores? And then along the same lines anything you learned from the number of sizeable acquisitions you’ve done just in terms of getting these stores ramping and getting margins more in line with the company average. Thank you.
Sure, on the first piece we really don't have a specific plan of organic versus tuck in. If I were to guess we've said that we're going to grow 10% new units. I would expect that two thirds or more of those will be new stores and the balance will be tuck in acquisitions so far this year the balances get away or more evenly.
We're literally looking at our real estate roadmap and say if we want to go to a particular market what's the best entry vehicle and if that is open up three or four stores in that market or to open up two or three and acquire one or two, so it's a market by market division.
But again if I were to ask me, my guess would be two thirds or a little bit more would be new stores and the balance would be tuck in. In terms of what we learned from the larger acquisitions, it's a very good question. The integration of these stores is a bit easier because we're looking at them essentially as new real estate, not brand new companies that have to be integrated.
So virtually on the first day, we manage them as a Boot Barn. We take over the business from a buying and marketing standpoint right out of the gate. Having said that, there still is a technical integration that has to happen, we put it in our ROP lab and has to get their sales performance information etcetera and having acquired RCC and that's in Sheplers and frankly even acquisitions prior to those has made the company pretty agile in terms of being able to integrate these businesses from a technical and operational perspective very quickly.
So we feel great about the tuck ins. We have a sort of guaranteed sales performance when we look at a new store that already has some history in. We have customers already in their database that we can market to and it enables us to accelerate in a particular market typically with a store that has a higher average or volume, their brand-new store would if we were to put it organically. We feel great about it.
Okay. Thank you.
And we'll go next to Oliver Chen from Cowen and Company. Your line is open.
Hey guys. This is Maksim for Oliver. Thanks for taking our questions and congrats on a strong quarter. I was just wondering as you build out your private label brands and penetration continues to grow. Can you provide some guardrails around minimizing markdown risk? And then separately as we continue to enhance and build out your websites, can you update us on your strategies towards the Amazon channel? Thank you.
Sure, on the first I think when we think about private brands or even Wonder West, the overarching view of our merchandise in this category relative to first of all, all the other retailers out there is pretty basic more replenishment type periods and yes while we were pushing a little bit more the private brands that are little bit more into this Wonder West more fashionable customer.
If you look at the overarching fashion curve within retail, we're still on a pretty steep side. From a private brand perspective specifically to your question, we tend to keep those brands pretty basic. There are almost all replenishment type items. They are extremely high quality some of the best products that we carry in the stores are own brand. So we tend not to take major risks from a design standpoint.
On the second piece relative to Amazon, our online strategy continues to evolve. We still think that we are the biggest player in our category online, including Amazon and while we respect what they do quite a bit, we feel very good about the underlying brand stream of Boot Barn from an omnichannel standpoint.
And with Sheplers with decades of history as a direct consumer brand and with the more fashionable country outfitter site, each of those brands has a whole online that can compete right alongside Amazon.
From an internal perspective, we've actually been looking at that business as an important piece of our online sales, but we're really focusing now on the profitability of that piece of the business and we've taken some things off of Amazon marketplace. We've great surprises on some other things at Amazon marketplace and while it's actually hurt our top line a bit we're making more money on that piece of business and we feel great about that in terms of our ability to drive EPS and still get some sales growth.
Got it. Thanks a lot.
Thank you, Maksim.
And next we'll go to Paul Lejuez with Citigroup. Your line is open.
Hey thanks guys. Just curious, if you look at the stores in the energy impacted markets, performance over the last several years, can you talk about what percent of those stores have come back all of the volume that was lost during the weaker period versus how many have not yet gotten back to their previous peaks?
It's a good question. I think Texas has which is the biggest state of all them by line and roughly 25% of our stores business has gotten most of it back and I think we have some few more quarters this quarter to go up again relatively soft numbers this year and the prior year.
The other state I think were North Dakota was really strong for a couple of quarters from the back information was taking off probably have been fully recovered, but it's still -- we're seeing some comp growth now and it probably has some room to continue to close the gap from where we are today if you were it's high watermark was.
The other thing that you have to throw into the mix there is constant movement of where we're drilling for oil around the country. So the question is easier to respond to conceptually then on a store by store based because some of the drilling activity has migrated particularly in North Dakota.
So we might put a new store in a place where the oil activity is now more vibrant and the former store may never ever get back to its watermark again but that's okay, still a very profitable store for us. So perhaps a long winded answer to your question, but that's kind of where we are thinking about it.
Got you. Thanks and then curious you mentioned sales to date, curious if you can make any comment about the margin performance that you're seeing and also curious about your credit card penetration this quarter versus previous quarters, thanks.
We're not going to talk about merchandise margin in July for example. I think that the quarter should be premature to comment on that. I am sorry about it. Credit card is a small piece of our business. It continues to be a small piece. It's important from a loyalty tie in perspective and we have furnish for those customers, gives them a little bit of open to buy that they might not otherwise have but it's pretty small.
The one thing I would just add to that is from a promotional calendar standpoint, we really don't have any major changes year-over-year versus last year if anything maybe eliminated a couple of days of promotions versus the prior year. So it's probably to comment specifically about merchandise margin rate in the quarter, but by and large our marketing calendar looks very similar to what it looked like last year.
Thanks and I was going to follow-up, appreciate that. Thank you and good luck.
Thanks Paul.
And next we'll go to Tom Nikic from Wells Fargo. Your line is open.
Hi everybody. Thanks for taking my question. I wanted to ask about the eCom business I know you said that it was up double digits. I was wondering if you could give any additional quantification beyond that or what the eCom penetration was in the quarter and I was also wondering if there were any meaningful differences in performance between bootbarn.com or Sheplers or even Country Outfitters?
So as a percent of business on an annual basis, our eCommerce business is 16%, 17% of our sales in that particular quarter was roughly in line with that. In terms of the relative performance, it's crazy to try to look at the three brands separately anymore because we are seeing lots of different movement of customers between brands.
So the Boot Barn is doing extremely well. Sheplers is doing less well is still kind of a much smaller business for us, but we have to look at those three brands on a consolidated basis because we've seen customers mostly migrating from Sheplers to Boot Barn which we do prefer. We have a slightly higher margin rate on bootbarn.com and we feel maybe more importantly we feel better the long-term value of a Bootbarn customer given the fact that we have 230 plus stores around the country and that's the brand that we're really investing more time and effort and marketing behind.
So the eCom business if you think about, we posted 11, we said our stores were almost 10%, roughly the penetration of our e-commerce business. So you can get to the fact that we were roughly a plus 20 little bit better than that from an e-commerce perspective.
Thanks. That's helpful and then just a quick follow-up, when you're talking about the different categories, I know you said only modest growth in Western Boots I don't want to be too nitpicky here but I was just wondering why maybe that category wasn't quite as robust as some of the other categories?
It's a great question. One of the factors is we've been buying into this particularly on the ladies boot side where the trend there or the piece of that lady boot business that's not basic around oriented boots, the more fashion oriented piece of it has migrated to short-shafted boots or goodies and we have a fantastic assortment of that product in the store. It's where some of our customers have migrated but happens to be a lower AUR.
So part of that is just a degradation of selling price, still selling at full price most of the time, but it's a lower retail product candidly as I think about the ladies boot business and that portion of it that tends to have a little bit of a cycle, that is probably an opportunity for us going forward to get additional sales growth because that business has been softer than the rest of the store for a few quarters now and I don't expect that that will continue forever.
So as I look forward paradoxically I view that as an opportunity for us to get additional sales growth in future quarters and if you look at what's happening in broader retail I think the boots trend and the influence of Western oriented fashion you can see it out there in a lot of more mainstream brands and I think that's just bodes well for Boot Barn.
Sounds good. All right. Best of luck for the rest of the year.
Thanks Tom.
And next we'll go to Mitch Kummetz from Pivotal Research. Your line is open.
Yes, thanks for taking my questions. Jim in your prepared remarks you talked about a more favorable macro. I don't know was that comment specific to oil and gas or are there other macro drivers that you like to call out maybe trends and whether construction manufacturing agriculture, I don't know you tell me?
Yeah I think oil and gas is for us probably the biggest one. As you think more broadly, the level of employment across the country and of course one that's been growing and kept our traditional blue-collar worker is employed now and that's a big part of I think some of the growth that we've seen in our work business.
And then on the private label, you said 15% penetration in the quarter, you mentioned one of your initiatives is to drive better penetration of the eCom piece. Is there any way you could break out what the private label penetration eCom verses stores I would guess, even though your eCom, you're not breaking out across the different concepts there, but I would guess that Sheplers traditionally was lower private label. How difficult is it to grow that at Sheplers.
Sure. So all of the eCommerce businesses are lower from a private brand penetration perspective and part of the reason for that honestly is the denominator is there. We have a much broader assortment online because we can consolidate the inventory in one location and we also vendor drop ship a lot of product.
So we've been very good in that business probably at the same 150 to 250 basis points a year from a penetration standpoint coming online. I don't think it will ever really get to the same level as the stores just by virtue of the fact that the assortment is so much broader online.
Having said that we've been -- we've been giving the target brands their own lending pages and trying to merchandise them on our respective e-commerce site I think they were in the store and they had their own section as well.
So I think that team has done a really nice job of getting some increase there, but we also want to make sure that we have a broad assortment that is representing all of our vendor partners online and that our customers can come to us at the house of brands and the online channel is the broadest piece of that.
Got it. And then lastly Greg and the guidance it's probably based on 23 new stores. Is there any way to give kind of a net store number for the year? I know you closed a couple in the quarter and any help of the cadence of the store additions?
Mitch I guess I would say we guided the new store ads as being relatively equal throughout the year. First quarter in Q2 we're going to add a few last base put into Q3, but pretty balanced in terms of additions.
And on the closings?
Yes so, we have stores come up for renewal every year and if you look at the profitability of the stores and opportunities to move the stores that we've closed one was in the middle of the market. It was a mile from the former Sheplers or the Sheplers store and it was a planned quarter.
We had planned to close it after year-end and then the other one was a natural lease exploration in North Dakota. So we look at those as leases come to. So I would expect us to be roughly plus 20 new stores, but it depends on our ability to renegotiate leases etcetera.
Got it. All right. Thank you.
And next we'll go to John Lawrence from Coker & Palmer. Your line is open.
Yeah, good afternoon guys. Congrats on the quarter. Would you discuss a little bit as far as the analytics and the CRM Jim, would you just talk a little bit take a little deeper dive there as far as strategically I know it's only in that game, can you talk a little bit about the leverage and the productivity curve as that continues and you learn more about I guess the eCommerce shop of just give us a sense of where you expect that to be say in another year or two?
Sure. Happy to do, just to be clear, the CRM is really for the entire customer database with eCom being a portion of it. As we've started to get better in terms of tailoring our message, sending direct-mail pieces that are specific to particular customer groups, segmenting our email list. So if you're a work-only customer, you're not getting cash in an email sent you and when you put all that together and we represent that online and represent that in email, in our catalog in direct-mail and our assortments are built that way.
We've seen every virtually every performance metric improve. So we've seen better open rates. We've been less abandon rates. More people are getting our email and engaging with them. We've seen really nice engagement on our social media platforms because each of those segment of customers now has their own following.
So I think when you put all that together we've been able to be more efficient with our marketing spend, we've been slightly different media mix for each different consumer segment. So while Wonder West is more visual and probably more fashionable, it has a heavier penetration of television.
Our work customer which has a much easier product line to understand and we just want to be top of mind in that customers in that customer's mind as a heavier preaching a radio advertising. So it's a very deliberate and thought-out strategy that started with looking at our seven million customers and identifying which group or groups they belong to and then kind of mounting our sales offense both marketing and merchandising in stores each of those and we feel great about how we've been able to evolve the business, but to your point I think we're still learning in that area.
I think it's still early and I think there's still some opportunity for us to improve and get better and hopefully continue to drive more sales.
Great. Thanks. Follow-up when you talk about the second half of the year and the holiday core of the disruptions of e-com can you is there anyway Greg you could quantify topline and bottom line impact of what we're saying the hurdle was last year as far as that impact?
Last year in our Christmas quarter while total e-commerce sales grew a little bit, we actually had negative same-store sales which we called out on that call. We also had nearly a $1 million of additional expense Greg is that's right between call center, labor, additional DC labor and trying to take care of orders and because we were having some difficulty on the operational side of that business and picking orders was taking longer.
We were than spending more money on freight. So between call center and DC labor and additional freight I think we had called out on the February call looking back at the third quarter about $1 million of additional expense. So from a topline perspective, we'll be cycling what amounts to a negative same-store sales in our Christmas quarter.
From an expense standpoint we're cycling about $1 million of unplanned expense in that quarter. So if I were to put my bullish head on, both of those are easier comparisons as we look forward.
Great. That's very helpful. Thank you and lastly does the difference in the dime in the guidance top and low end and high end I assume is that primarily all sales related or is there some margin assumption in that as well.
It's all within the range of sales.
Great Thanks. Congrats and good luck.
Thank you.
Well thank you everyone for joining the call today. We look forward to speaking with you on our second quarter earnings call. Take care.
That concludes your call for today. Thank you for your participation. You may now disconnect.