Boot Barn Holdings Inc (NYSE: BOOT)Q4 2019 Earnings CallMay 16, 2019, 4:30 p.m. ET
Contents:
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- Prepared Remarks
- Questions and Answers
- Call Participants
Prepared Remarks:
Operator
Please stand by. Good day, everyone, and welcome to the Boot Barn Holdings, Incorporated Fourth Quarter Fiscal Year 2019 Earnings Call. As a reminder, this call is being recorded.
Now, I’d like to turn the conference over to your host, Mr. Jim Watkins, Vice President, Investor Relations. Mr. Watkins, please go ahead.
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Jim Watkins — Vice President, Investor Relations
Thank You. Good afternoon, everyone. Thank you for joining us today to discuss Boot Barn’s fourth quarter and fiscal 2019 earnings results. With me on today’s call are Jim Conroy, President and Chief Executive Officer; and Greg Hackman, Chief Financial Officer. A copy of today’s press release is available on the Investor Relations section of Boot Barn’s website at bootbarn.com. Shortly after we end this call, a recording of the call will be available as a replay for 30 days on the Investor Relations section of the Company’s website.
I would like to remind you that certain statements we will make in this presentation are forward-looking statements. These forward-looking statements reflect Boot Barn’s judgment and analysis only as of today and actual results may differ materially from current expectations based on a number of factors affecting Boot Barn’s business. Accordingly, you should not place undue reliance on these forward-looking statements. For a more thorough discussion of the risks and uncertainties associated with the forward-looking statements to be made during this conference call and webcast, we refer you to the disclaimer regarding forward-looking statements that is included in our fourth quarter fiscal 2019 earnings release, as well as our filings with the SEC 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?
James G. Conroy — President and Chief Executive Officer
Thank you, Jim, and good afternoon. Thank you everyone for joining us on today’s call. Fiscal ’19 was an outstanding year for Boot Barn. In this call, I’m going to discuss the highlights of our annual performance, then walk through the details of our fourth quarter results, including the recent progress we’ve made executing each of our four strategic initiatives. Greg will then review the financial results and outline our fiscal 2020 outlook. Following Greg, we will open the call up for your questions.
Looking at the full year, our results exceeded the expectations we initially set for the business. Consolidated same-store sales increased 10% with e-commerce comps up 12.2% and retail stores comping up 9.5%. At the same time, merchandise margins increased 110 basis points driven by better full-price selling and growth in exclusive brand penetration. The combination of double-digit top line growth and significant merchandise margin expansion helped fuel 150 basis point increase in EBIT margin to 8.3%, achieving nearly 40% EBIT growth for the year.
Looking more recently at the fourth quarter, we finished the year extremely well. We achieved growth across the business during the fourth quarter despite cycling a 12.1% same-store sales increase in Q4 of last year. For the quarter, consolidated same-store sales increased 8.7% with all major geographies and product categories posting gains. In terms of channels, our retail same-store sales increased 9.8%, our eighth consecutive quarter of positive store comps. E-commerce same-store sales improved 3.3% as we remained focused on improving the profit contribution of our digital business. Similar to our full year performance, the strength in same-store sales combined with 150 basis points of improvement in merchandise margin drove a significant improvement in profitability with a 46% increase in EBIT for the quarter. We believe that our Organization’s steadfast focus on executing our strategic initiatives, coupled with the tailwinds from a strong economic environment, contributed to our solid performance throughout the year.
I will now spend a few minutes reviewing the progress we made in the fourth quarter and our plans for fiscal 2020. Let’s begin with driving same-store sales growth. Our retail same-store sales grew 9.8% in the fourth quarter, accelerating to more than 20% on a two-year stack basis. From a merchandising perspective, all major product categories grew year-over-year with particular strength in work apparel and work boots, followed by hats and ladies’ western apparel. The addition of several new exclusive brands, inventory investments in key categories and the reallocation of store merchandising space to faster growing businesses contributed to a strong performance during the quarter.
With respect to marketing, our customer segmentation strategy, upgraded creative aesthetic and ongoing refinement to our media mix again resulted in an increase in our customer count on a comp store basis. We believe that these marketing strategies continue to drive traffic to the brand, both by attracting new customers and engaging lapsed customers. On the store operations perspective, we continue to efficiently plan our store labor hours and improve upon customer service and selling initiatives. The field once again delivered a great result this quarter as evidenced by both the same-store sales increase and the improvement we saw in customer service scores.
As we look forward to fiscal 2020, we plan to make additional improvements in our segmentation that should enable us to become even more relevant in our communication to each individual customer. We will further evolve our marketing materials both digital and traditional with an emphasis on the western, work and Wonderwest customers. Accordingly, our merchants continued to improve their assortments with new styles, broader size ranges and greater merchandise variety. As part of this, we will continue to expand the footprint of our work merchandise in the stores by expanding our work boot and work apparel offering to meet the growing demand. Finally, we continue to add to the sales and customer service training as well as product education for all of our store associates to maintain our authoritative position in the industry and continue to encourage store traffic seeking input and assistance in the purchase process.
Moving to our second initiative, strengthening omni-channel leadership. In the fourth quarter, same-store sales in our e-commerce channel grew 3.3%, which, similar to our stores business, also represents more than 20% growth on a two-year stack basis. Once again, our recent efforts have focused on improving the profitability of our online sales channel and have resulted in meaningful expansion in our EBIT rate.
Over the past couple of years, we have implemented several omni-channel initiatives, including the integration of our e-commerce sites on to a common platform, while consolidating the fulfillment of inventory for each of our sites into an upgraded fulfillment center in Wichita, Kansas. This has enabled us to operate our e-commerce business more efficiently.
Additionally, we continue to make great progress incorporating a compelling digital experience inside our retail stores. Over the past couple of years, we’ve augmented our in-store shopping experience with several digital innovations in store. For example, today, a customer can browse our assortment on our Rangefinder touchscreen to help navigate and select an item in store that meets their functional requirements and preferences. And if, for some reason their specific need cannot be satisfied, but the inventory already residing in the store, they can toggle immediately to our web capability and have the item shipped to their house or to the store for pickup. Lastly, we can now seamlessly accept returns for online purchases in all of our retail stores, fully closing the loop on the omni-channel experience.
Looking forward to fiscal 2020, we plan to continue to improve the site merchandising and functionality of our e-commerce platforms to create a better online shopping experience. As part of these efforts, we are adding alternative payment options to our websites, which will create more flexibility for our customers. We will also leverage our e-commerce platform to enhance our work business. And in the coming weeks, we will launch our recently developed business-to-business website for our commercial accounts business. We believe the addition of this site will allow us to better access more large scale B2B customers on a national basis.
Now to our third strategic initiative, exclusive brands. For the fourth quarter, our exclusive brand penetration reached 18.1% of total sales, an increase of more than 400 basis point when compared to the prior year period. For the full year, exclusive brands represented 16.2% of total sales compared with 13.5% in fiscal 2018. Fiscal 2019 was an exciting year of growth in our exclusive brands business. This past fall, we launched Idyllwind by Miranda Lambert, Hawx and Cody James work. We have seen positive receptivity to each of these brands, which contributed to our growth in the fourth quarter and we believe will continue to drive growth in both sales and margin. These exciting new brands are great additions to our exclusive brand portfolio, which is led by Cody James and Shyanne, our largest exclusive brands and two of the top five selling brands in the Company.
Looking ahead to fiscal 2020, we plan to drive additional growth in our exclusive brands. Not only are we excited about our three new brands, but all of our exclusive brands have the ability to expand in breadth of styles, depth of inventory and overall store count. We will continue to invest in this area with our focus on producing high-quality merchandise that supplements the assortment from our third-party brands.
Finally, our fourth initiative, expanding our store base. During the fourth quarter, we opened six Boot Barn stores, bringing our total count to 240 stores. With the addition of stores in Mississippi and Virginia, we now have Boot Barn stores in 33 states. For the full year, we added 17 stores, including 12 new Boot Barn stores and five acquired stores. We believe we can expand to 500 stores nationwide and plan to grow new units by 10% in fiscal year 2020 through the combination of organic growth and tuck-in acquisitions. We remain focused on augmenting our new store development with opportunistic tuck-in acquisitions that will enable us to quickly enter a new market and we will continue to target a three-year payback or better.
Turning our attention to current business. We are now at the halfway point of the first fiscal quarter and our business continues to be very strong with consolidated same-store sales growth quarter-to-date of 7.5%. Our retail stores continue to outperform and are tracking in line with their fourth quarter performance with nearly a 10% same-store sales growth on a quarter-to-date basis. Once again, we are seeing broad-based growth across virtually all geographies and merchandise categories. Along with the top line growth, we are continuing to achieve solid merchandise margin performance as a result of better full-price selling and growth in exclusive brand penetration.
In contrast, our e-commerce business is negative thus far in the quarter. For reference, our e-commerce business during Q1 of last year was very strong, partly driven by a roughly 50% comp in the month of April. After cycling that anomaly, the e-commerce business has turned back to a modest positive growth rate and we expect that to continue for the balance of the quarter.
Before I turn the call over to Greg, I’d like to provide some commentary on tariffs, certainly a topical subject at the moment. To give you some perspective, when we think of our direct responsibility, we only develop in stores our exclusive brand merchandise, which is approximately or was approximately 60% of fiscal 2019 sales. Of those goods, approximately two-thirds comes from China. So our direct responsibility is only about 10% of total merchandise. An additional 40% of our business is sourced from China through our third-party vendors. We would expect that our vendors and their factories would absorb at least a portion of any additional tariffs. Having said that, given the functional and somewhat non-discretionary nature of much of our business, we believe that we could pass along modest price increases for most of our categories to cover any incremental costs passed to us from our vendor partners.
And now, I’d like to turn the call over to Greg Hackman.
Greg Hackman — Chief Financial Officer and Secretary
Thank you, Jim. Good afternoon, everyone. In the fourth quarter, net sales increased 12.9% to $193 million. As Jim mentioned, sales growth was driven by an 8.7% increase in same-store sales, the sales contributions from acquired stores and sales from new stores added over the past 12 months. During the fourth quarter, we added six new stores, bringing our store count at the end of the quarter to 240 stores in 33 states.
Gross profit increased 19.9% to $63.4 million or 32.9% of sales compared to gross profit of $52.9 million or 31% of sales in the prior year period. The 190 basis point increase in gross profit rate resulted from a 150 basis point increase in merchandise margin and 40 basis points of leverage in buying and occupancy. Merchandise margin rate increased as a result of better full-price selling, growth in exclusive brand penetration and from lower shrink.
Operating expense for the quarter was $46.9 million or 24.3% of sales compared to $41.6 million or 24.4% of sales in the prior year period. Operating expenses increased primarily as a result of additional costs to support higher sales and expenses for both new and acquired stores.
Income from operations was $16.5 million or 8.6% of sales in the quarter compared to $11.3 million or 6.6% of sales in the prior year period. This represents 200 basis points of improvement in operating margin. Income tax expense was $3.7 million in the quarter compared to $600,000 in the prior year period, resulting in an effective income tax rate of 30% in the fourth quarter. The increase over the projected 25% tax rate was primarily due to a return to provision adjustment. The full year tax rate of 18.7% was lower than our projection of 25% for the full year, as we benefited from lower tax expense related to stock option exercises.
Net income was $8.7 million or $0.30 per diluted share compared to $6.9 million or $0.24 per diluted share in the prior year period. Net income in the current year period includes $0.02 per share of tax expense related to a return to provision adjustment. Net income in the prior year period includes $0.06 per share of tax benefit from exercise of stock options.
Turning to the balance sheet. Inventory increased approximately 3% on a comp store basis compared to last year. On a consolidated basis, inventory rose 14% to $241 million compared to a year ago. The increase was primarily driven by inventory for new and acquired stores added in the last 12 months and an increase in the inventory at our Fontana distribution center, which supports our exclusive brands and full container purchase program. As of March 30, 2019, we had a total of $174 million of debt outstanding with our revolver undrawn and $16.6 million in cash. Our net debt leverage ratio at the end of fiscal year — at the end of the fiscal year was 1.9%.
Turning to our outlook for fiscal 2020, we expect same-store sales to grow approximately 5% and earnings per share to be in the range of $1.42 to $1.50 per share based on an estimated weighted average diluted share count of 29.4 million shares for the full fiscal year. The high end of our guidance range represents 20% growth in earnings per share, when normalizing fiscal year 2019 with our fiscal 2020 estimated tax rate of 25.4%.
Our income from operations is expected to be between $71.5 million and $74.4 million. We expect net income for our fiscal 2020 to be between $41.7 million and $44 million. We expect our interest expense to be approximately $15.5 million and capital expenditures to be between $27 million and $29 million. As we look for the — to the first quarter, we expect same-store sales to increase approximately 6% and net income per diluted share to be in the range of $0.20 to $0.22 per share.
Now, I would like to turn the call back to Jim for some closing remarks.
James G. Conroy — President and Chief Executive Officer
Thanks, Greg. Fiscal 2019 was a fantastic year for us. We’re very pleased with momentum as we have moved into 2020. We are very excited about the opportunities ahead to drive same-store sales, strength in our omni-channel experience, grow exclusive brands and continue to expand our national footprint through new unit growth.
Before we open up the call to take your questions, I would like to sincerely thank the entire Boot Barn Organization for their commitment and execution in fiscal 2019. As a result of your dedication and efforts to further grow and develop the Boot Barn brand, we had a great year and delivered tremendous results.
Now, I would like to open up the call to take your question. Becky?
Questions and Answers:
Operator
Thank you. (Operator Instructions) We’ll go first to Matthew Boss with JPMorgan.
Matthew Boss — JPMorgan — Analyst
Thanks and congrats on a great quarter and continued momentum guys.
James G. Conroy — President and Chief Executive Officer
Thanks, Matt.
Greg Hackman — Chief Financial Officer and Secretary
Thank you, Matt.
Matthew Boss — JPMorgan — Analyst
So Jim, as you break down current same-store sales performance relative to the Company’s 3% to 5% historical run rate, are you seeing the upside in oil and gas regions to your more mature markets or is that a combination of both? And just how do you attribute the strength to the — do you attribute the strength to Company-specific initiatives or more macro? Just maybe a sense of what you’re seeing out there and what you’d attribute it to.
James G. Conroy — President and Chief Executive Officer
Sure. Well — and just to recalibrate, we have guided our long-term algorithm to like low to mid from the same-store sales perspective and I think that’s what you’re harkening back to with the 3.5% to 5%. Candidly, we’d outperformed that number, right. For nine years, we’d averaged about a plus 8% and we constantly tried to move around everybody to the algorithm, which is low to mid single-digit comps and 10% unit growth and margin expansion through exclusive brands. Getting back to the root of your question though, look, I think we have to attribute some portion, maybe a third of the performance to macro, right. Employment is near or at an all-time high. The oil industry is pretty darn strong. So we’ve got a lot of guys out there working and a lot of people buying our product. But I do think the Company has executed well. We have — we continue to just harp on our four strategic initiatives. We’ve got 150 or so people at the store support center and roughly 3,000 people in the field focusing on those four things every day and we’re trying to kind of keep our strategy simple, so our execution can be impeccable. And I think that’s been working for us. I mean, so our segmentation and our change in our media mix and the upgrades we’ve made to the brand aesthetic from a creative standpoint, I think, has brought back customers that had lapsed Boot Barn, has opened the brand up to brand new customers and with new customers more traffic. We’ve got a very healthy same-store sales increase that is based more on more transactions and more customers, less promotions, higher margins. I mean, it’s — we feel great about it. And it’s really nice to have seen the two-year stack accelerate from Q3 into Q4 and bump up to a plus 20% because there were some questions I think from a lot of folks out there is, can you break free from the plus 13% or plus 14% to your stack, and we’re able to do that in the fourth quarter. So — and along with an answer to your question, but I would — I think a portion of it is macro and a little bit more than half of it, I think, is continuing to focus on execution of the strategies that we’ve had in place for quite some time.
Matthew Boss — JPMorgan — Analyst
Great. That’s a good answer. And then on the expense front, I guess, how should we think about the leverage point for SG&A this year versus I think it’s historically been about a 1.5% to 2% comp needed for leverage? And just any nuances between the first and second half of the year to be aware.
Greg Hackman — Chief Financial Officer and Secretary
Matt, it’s Greg. Good question. Last year, fiscal ’19 was a bit of a year of investment in terms of we had really strong top line growth and really strong merchandise expansion growth. And so in some respects, we invested back into the business and back into the SG&A. We — as we look to fiscal 2020, we expect to achieve that same kind of — our long-term algorithm estimated average rate of 1.5% to 2%. You couple that with getting some leverage on occupancy and buying at 4% or 4.5% this year as a result of both expanding our store count even more and our continued investment in the product design and development group that’s driving that exclusive brand penetration, you get to seeing EBIT leverage or operating margin leverage at roughly 3% or 3.5%.
Matthew Boss — JPMorgan — Analyst
Got it. Best of luck.
Greg Hackman — Chief Financial Officer and Secretary
Thank you very much.
James G. Conroy — President and Chief Executive Officer
Thank you.
Operator
And we’ll go next to Jonathan Komp with Baird.
Jonathan Komp — Baird — Analyst
Yeah. Hi. Thank you. I want to ask a little bit more about the e-commerce business and I’d be really curious if you’d be willing to share any insights on the profitability improvement you’re seeing for that channel specifically. And then when you think about the comparisons, I know you call out April, which was unique, but how do you think about just overall the next few quarters, the comparisons and how that will impact sales versus margin for the channel?
James G. Conroy — President and Chief Executive Officer
Okay, good question. So on the e-commerce business, I guess, I’d start with a bit of a tale of two cities. Our bootbarn.com business has been extremely strong and we feel great about that. Of course, that’s the omni-channel brand, it’s a brand we’re investing in, it’s where we get a higher lifetime value for our customer. So the bootbarn.com business has continued to grow nicely, including in its current quarter, most of the — I mean, all of the softness we’ve seen is in the sheplers.com business. And while it’s a little bit disappointing, when we really kind of dig into it, where we’re seeing most of the erosion, it’s on traffic coming from pay-per-click. And the way we kind of think about it is that piece of the business, from a financial perspective, is probably the least profitable part of our e-commerce business because you’re buying the customer for nearly every time. And then from a strategic perspective, I mean, this is a price-conscious, non-loyal customer. So we have kind of taken a strategic decision to not chase customers from the pay-per-click perspective. We’ve seen a little bit of an increase in cost-per-click and rather than increased our spending to continue to drive that part of our business from a top line perspective. We just kind of moderated our spending because I think increasing our spending to keep the traffic would be EBIT eroding.
From a from a profitability standpoint, Greg can give you some color on the EBIT contribution.
Greg Hackman — Chief Financial Officer and Secretary
Yeah. We saw really nice improvement in Q4 year-over-year in profitability of the e-commerce business. That business is still less profitable than our stores and we continue to try to work toward improving our profitability and we’ll continue to do that. As it relates to Q1 business, I mean, I think it’ll be a tougher compare to show outsized improvement because we started that work last year in Q1, but we’re going to continue to focus on profitability and where it doesn’t make sense to grow marginal profitable sales, we won’t do that.
Jonathan Komp — Baird — Analyst
Okay, great. And just as a follow up. So when you started the cycle, the initial work last year, I think that implies maybe this sales comparison is less difficult. So would you expect the comps to start to come back even though the rate of profit improvement might not be the same of what you’ve seen?
Greg Hackman — Chief Financial Officer and Secretary
Yeah. I think that starts, Jon, probably for some in Q2. We started that work in the beginning of May last year. So Jim talked about we were up against a plus 50 comp last year in e-com in April and that — so we haven’t started that work. We started that work at — it hurt the same-store sales performance a bit last year. I think on the quarter, we were still plus 20-ish in Q1, so it didn’t tank the business completely, but it was — but it did hurt. And so we’ll have a little bit softer compares wherein May and June.
Jonathan Komp — Baird — Analyst
Okay, great. And then my other question really relates to the outlook for the year. So you’re pointing comps toward the high end of your typical range, at the high end of your earnings guidance, it’s kind of right in line at that 20% underlying growth rate that you’re targeting on an ongoing basis. I’m just wondering as you look at the outlook, what that puts and takes you see? And if there’s any meaningful opportunities for upside or downside or just how you’re thinking about the profitability embedded in the guidance?
James G. Conroy — President and Chief Executive Officer
No, it’s a good question. I think there’s — we feel good about the guidance we’ve put out there. I think it’s — we’re signaling 20% earnings growth on top of a year that we did 40% or more of earnings growth. In terms of puts and takes, look, there’s always consternation out there about the economy, job growth, the new question about tariffs, et cetera. But from a industry standpoint, from a competitive standpoint, from an internal execution standpoint, our readiness from an organization perspective, I think we’re set up well, honestly, for another great year. We’ve had continued strength in stores, healthy comps, more customers, less promotions. We’ve launched our three new exclusive brands, which was taking a bit of a chance putting three new brands out there in a relatively short period last year. But as we commented in the last couple of calls and on today’s call, each of those three brands have taken root and are building share and have the opportunity to expand. When we think about new store growth, we feel like we’re also a pretty strong start in new stores for fiscal 2020. We — as Greg mentioned, we expect to grow 25 new stores and approximately 16 of them have already been identified. So we feel great about the execution across each of the different pieces of the business and we’d like to think of putting out a guidance number that is conservative.
Jonathan Komp — Baird — Analyst
Okay, great. Thanks for all the perspective.
Operator
And we’ll go next to Peter Keith with Piper Jaffray.
Peter Keith — Piper Jaffray — Analyst
Hi, thanks guys and my congrats as well on great results. I want to just follow up on the tariff commentary. Obviously, appreciate you framing that up. But maybe just to tie a bow around it, would you, I guess, say that with regards to how tariff shake out that you would anticipate minimal impact on the overall financial results?
James G. Conroy — President and Chief Executive Officer
Yeah. I think so. I mean, it’s — when we think about — a couple of different perspectives, I suppose. One is we are specifically responsible just for the portion that we import through exclusive brands. And admittedly, part of that comes from China and we’re looking at alternative sources to further mitigate that risk. Of course, our vendor partners would face similar problem as they’re bringing product in — from China as well. We’ve met with all of them. In fact, we’ve had all of our major vendor partners in — had top-to-top quote-unquote meetings with them in the last couple of months and all of them are looking at alternative places to source. And I do believe that even if they continue to source some of their product through China that there’s opportunity for pushing back to their factories and looking for more efficiencies in the supply chain, so the vendors and their factories can bear a part of the cost and in proportion does get passed along to us, we believe that we can pass it along to the customers, right. I mean, most of our product, as you well know, Peter, are functional in nature, right. So steel toe work boots, flame resistant work apparel and actually a lot of our men’s western product is being used by guys that are outside working and it’s not really a discretionary spend. So we believe that whatever portion of the tariff that would get passed along to us, we’d most likely be able to pass it along to our customer. And maybe one more piece of color on that. If they frame it up in terms of what it looks like on a pair of boots, if we passed along the entire cost of a tariff to a customer on a boot that costs $179 retail, that retail price would go up to about $189. So we’d rather not have to do that. We obviously hope this goes away entirely. But even if we had to pass the entire cost along, I think it’s a relatively modest increase for a product that tends to be non-discretionary for most of what we sell.
Peter Keith — Piper Jaffray — Analyst
Okay, that’s very good and helpful feedback. And maybe just pivoting to the commercial business. So interesting that you’re launching a B2B website. Could you give us maybe an update on your commercial efforts for this past year, where it maybe shook out as a total percent of sales and how that business has been growing as of late?
James G. Conroy — President and Chief Executive Officer
Sure. No, our commercial accounts business has been an area that we’ve been investing in. We’ve got now an organization of six or seven people that are kind of a direct sales force. Part of that is knocking on doors, so to speak, from a B2B standpoint and trying to get new accounts and part of that is equipping or training our stores to help identify and find leads because oftentimes people just walk into our stores looking for work apparel or work boots and we really want to engage them in a discussion to see if they are part of a broader team or crew, where we can outfit the whole crew. In terms of — to give you some dimensions of the size and growth rate, we’ve called out in the past that it’s a low single-digit portion of our business, call it, roughly 3%. It’s growing extremely quickly. It’s growing. I don’t know how to give you a number without just giving you a number, but probably north of 40% or 50% annual growth in our commercial accounts business. And we’re investing in that with people and with product and this latest addition of the B2B website really will do two things for us. One, it will help us service current accounts better and we can keep their roster of their crew completely electronically on their own site, but maybe even more than that, it enables us to identify target and hopefully recruiting larger accounts, right. One of the only stumbling blocks that we’ve had in going after national accounts of much bigger companies is we don’t have a electronic way of taking care of their business and are dealing with their voucher program, the way they subsidize the purchases to our stores and the commercial accounts sales team. I think once we eliminate that particular stumbling block or handcuff from their selling proposition, they’ll have even more success with their current accounts and landing additional and perhaps even bigger accounts. So it’s a bit of a investment in the future. It’s relatively small dollars of an investment, we’re just — the — finding the time with the current development team to put that in place. But we’re in the final innings of rolling that out and we’ve got a beta client or account setup and about ready to start.
Peter Keith — Piper Jaffray — Analyst
Very good. Thanks so much and good luck this coming year.
James G. Conroy — President and Chief Executive Officer
Thank you.
Greg Hackman — Chief Financial Officer and Secretary
Thank you.
Operator
We’ll go next to Oliver Chen with Cowen and Company.
Oliver Chen — Cowen and Company — Analyst
Hi. Great results.
James G. Conroy — President and Chief Executive Officer
Hey, Oliver. Thank you.
Oliver Chen — Cowen and Company — Analyst
Regarding merchandise margins, that’s been also impressive. What do you see as the opportunity going forward in terms of both inventory management and maximization of full-price selling? Also, would love your thoughts on the private brands and how you’re thinking about how they’ve segmented in terms of not being cannibalizing and also the brand positioning and inventory management techniques just to engage in the right level of test, treat and react? Thank you.
Greg Hackman — Chief Financial Officer and Secretary
So I can take the first two parts of that, the inventory management and opportunity for full-price selling. I mean, we’re exiting fiscal ’19 with our inventories cleaner than they’ve been the last couple of years. So we’re really well positioned from a content perspective and we’re really pleased with that. In terms of full-price selling, we’ve talked about the fact that about 85% of our sales are done at full-price with the balance split kind of between clearance and promotions. And when we look at that, the promotions is the one place that we have clear control over how we talk to the customer and we’re going to continue to look at opportunities to reduce that, either in terms of days or level of promotion. We haven’t seen a negative impact when we’ve done that in the past and so we’ll continue to pull on that lever. In terms of the clearance, like I mentioned, I mean, the content of the inventory is very, very good and so we’re being able to be more targeted in our promotions in terms of either merchandise category or perhaps a store level approach. So really good opportunity and we’re pleased with the merchandise margin contribution as we continue to grow our exclusive brands. So really pleased with that.
James G. Conroy — President and Chief Executive Officer
I can take the second piece on private brand, Oliver. From a segmentation standpoint, we’ve pretty strategically I think put together six different brands. And if you think about three different customer bases, men’s, ladies and work and then on the other dimension, you think about your core legacy customer versus a brand new customer, we’ve sort of put a brand in each of those boxes, right. So Cody James and Shyanne are intended to really bring product to life for the traditional legacy Boot Barn customer. And frankly, it’s our biggest customer grouping, which is why Cody James and Shyanne are our two biggest brands. We fended the Cody James name into Cody James work to try to bring that same customer an assortment of work merchandise, so they can kind of walk across the store from the western side to the work side and buy a pair of work boots that go along with their Cody James jeans, for example. The other three brands are really with the purpose of going out and introducing Boot Barn to net new customers. The partnerships with Brad Paisley and Miranda Lambert and both of those partnerships are extremely strong with their teams contributing quite a bit above and beyond any agreement that we have in place with both of them, so we feel extremely positive on those two relationships. And the goal there, of course, is to help introduce Boot Barn brand and their lines specifically to their fan base and their fan bases, in both cases, are very broad and perhaps one concentric circle outside the core western customer of Boot Barn. Hawx is positioned similarly ironically because Hawx is going after a work customer that perhaps doesn’t have a western aesthetic and is looking to get a pair of steel toe work boots that wouldn’t otherwise come into a store that means toward the western industry or the western kind of creative aesthetic. You had one other piece of your question, which was around, is this new business or cannibalized business, and I think it’s a combination, it sort of depends on the brand. We’d like it all to be incremental, but I think that in some cases, we’re taking share from some of the brands that are already in the store that tends to be secondary or tertiary brands, right. The best vendor partners that we have create their own demand, they’re tremendous vendor partners for us, they have innovative product lines and most of those guys aren’t losing shipments or share within the store. We tend to bring our private brands in either to fill a void in an assortment or to replace a weaker brand. So that’s how they are positioned. And candidly, we put a lot of time and effort and investment into the three new brands with the hope that they would get off — out of the gate quickly and get off the ground quickly and we’re really pleased what they have and they seem to have just ongoing expansion opportunities as we continue to build out the assortment. So hopefully that helps answer your question.
Oliver Chen — Cowen and Company — Analyst
Thank you. That’s really helpful. It did. The last question is on customer acquisition cost and thinking about customer lifetime value and how you’re managing the axes between new versus existing customer lifetime value. What are your thoughts about how your marketing spend has evolved and also the key drivers to the CLV analysis?
James G. Conroy — President and Chief Executive Officer
Our — it’s an excellent question. Our marketing has evolved a couple of different ways. Number one, the segmentation enables us to speak specifically to each segment. So a traditional look guy isn’t getting something about ladies’ fashion or festival wear to go to stagecoach and vice-versa. So I think that has helped. We have really taken a pretty giant step forward from a creative standpoint with the intent of getting customer in the industry and having people that aren’t necessarily traditional western customers to look at the brand and have had some tremendously positive response from the way the branding has come across. And then finally from a media mix standpoint, we have pulled dollars away from — just to give you an example, we pulled dollars away from direct mail, spending catalogs to current customers and have shifted it to wired net broadcast type media. So in some cases, it’s television, a lot of country music radio, whether that’s terrestrial or online radio or satellite radio, a lot more social and the goal of virtually all of those channels is to bring more customers into the brand and it’s — it is somewhat of a virtuous cycle, right, where we think we have a great assortment, new updated creative and branding store. We’re excited to share that with new customers and introduce them into the brand. And we’re very careful to not lose sight of the fact that our core customers already know us and they want core western product and work boots and work apparel because that’s what they’ve kind of come to love about Boot Barn. So we communicate with those guys and women more often than not through email. So we really have put email off on a pedestal from — in terms of importance. It’s by far the most frequent communication that a customer will receive from us and the creative looking feel, the messaging that you receive depending on which segment you’re in, you were analyzing response and open rates and click through rates, et cetera. And that has really enabled us to pull money away from direct mail and put it into email. This is virtually free and save the marketing dollars to go out and get new customers.
Oliver Chen — Cowen and Company — Analyst
Thank you. Very helpful. Best regards.
James G. Conroy — President and Chief Executive Officer
Thanks, Oliver.
Greg Hackman — Chief Financial Officer and Secretary
Thanks, Oliver.
Operator
And we’ll go next to Paul Lejuez with Citi.
Paul Lejuez — Citi — Analyst
Hey. Thanks guys. I’m curious, if you could share the credit card penetration level this past year and also curious what the learnings were from that program, if there are any plans to make that more of a focus in the year ahead? And then second, just — I think you mentioned increasing the work category in stores, did you feel like you were missing sales in that category and as you looked at increased, I don’t know if it’s SKU count in total across all stores, but I’m curious how you plan to do that? Will that be with your exclusive brands or will that be across the board, all brands? Thanks.
Greg Hackman — Chief Financial Officer and Secretary
Paul, it’s Greg. The credit card penetration this past year was mid single-digits and grew from low single-digits last year. So we added roughly about 150 basis points of penetration. It’s still a pretty small piece of our business. And when we think back about what we were really trying to do with this program, it was to, number one, create a little bit more stickiness to that customer, create better loyalty with that customer and also give them an opportunity to expand their open to buy and shop with us some more. I don’t think we’ll get to beat the department store penetration of the 40%, so maybe even Best Buy that I think is probably at 30%. But it is important to us and we want to continue to grow it. And again, I think from a loyalty perspective, it creates a more loyal customer. So that’s the warnings of that. Jim, I can talk about work or you can?
James G. Conroy — President and Chief Executive Officer
I can take it. On the work piece, if you went back through the last several quarters, we’ve been commenting about the strength of the work business, both apparel and work boots. And are we — were we missing sales, it’s hard to believe. I mean, the business was so strong, but I suppose the decision we’ve taken to add more space will indicate that we think there’s more opportunity. And I’d give you some example of what that’s kind of like. We can look at some businesses, some parts of the different markets around the country that tend to sell pull-on work boots and not sell as much lace-up work boots. While we think there is an opportunity now to kind of attract both customers into some of our stores that would tend to skew one way or the other. So we’ll build more capacity in the work boot section, broaden the assortment, ensure a part of that broadened assortment will include both Hawx and Cody James. And the goal there is to — that part of the business or that part of the store has perhaps the highest sales productivity per square foot and to alleviate some of the kind of inventory productivity of the work section and how to turn a little bit slower and more in line with the rest of the store. So we do think there’s — by doing so, we’ll get a more comfortable shopping experience, a broader assortment, sell more product and perhaps introduce a more traditional work customer to Boot Barn. And otherwise, wouldn’t have come into the store. So if you think about all the different strategies that we have recounted, even over the last few questions, there — it’s kind of two pieces, how we — how do we take care of our current customer base, while also introducing and bringing in more customers. And I think the expansion of the work pad so to speak within the store is just another way to do that.
Paul Lejuez — Citi — Analyst
Got you. Then just one follow up. The new class of stores that’s planned for this year, the one that you already have locked and loaded, what’s the average box size compared to previous classes? What should we use for the average this year’s class?
James G. Conroy — President and Chief Executive Officer
It’s similar to past year, is 11,000 square feet or so. As you know, Paul, some of the acquisitions that we made most notably Sheplers had larger store sizes. But our brand new stores that we’ve opened tend to be somewhere between 10,000 square feet and 12,000 square feet, so if you got to pick a number, I’d probably say 11,000 square feet.
Greg Hackman — Chief Financial Officer and Secretary
I’d say — yeah, I’d say 11,000 square feet and $1.7 million or $1.8 million of productivity versus the average store does about $2.4 million.
Paul Lejuez — Citi — Analyst
Got you. Great. Good luck, guys.
James G. Conroy — President and Chief Executive Officer
Thank you, Paul
Greg Hackman — Chief Financial Officer and Secretary
Thank you very much.
Operator
We’ll go next to Tom Nikic with Wells Fargo.
Tom Nikic — Wells Fargo — Analyst
Hey, everybody. Thanks for taking my question. I’m not sure if you touched on trends by region, but if there were any differences between Texas or California or any of the other major regions, I’d love any color from that perspective.
James G. Conroy — President and Chief Executive Officer
Fortunately, we saw a very broad-based strength and very little differences across regions. Texas was a little bit better than the Company average — actually, it was — and Texas was a little bit better than it was in the third quarter, but it wasn’t so great that it pulled up a whole bunch of underperforming regions or districts. In the fourth quarter, the way we think about our business is we have 21 districts and three regions. The three regions were all pretty much in line, perhaps the one that includes Texas was a bit better. All 21 districts were positive, which was just a testament to Mike Love, the guy that runs our stores business and and the field organization. So the regional differences weren’t notable enough to even call out.
Tom Nikic — Wells Fargo — Analyst
Got it. So the second Christmas that you get in Texas in Q4 from rodeos wasn’t — it didn’t make the difference in the quarter, basically you had broad-based strength. I’m thinking about that correctly, right?
James G. Conroy — President and Chief Executive Officer
You are. We did have broad-based strength. We actually did have a very good rodeo season in Texas. And — but it was just slightly better than all of Texas for the balance of the quarter and that was just slightly better than the whole chain for the whole quarter.
Tom Nikic — Wells Fargo — Analyst
Got it. Okay. And just one quick question for Greg. So based on what you told us about the leverage points on SG&A and the buy in occupancy lines, I want to sort of flow that through my handy dandy excel model. I kind of get that to get to your operating income guidance for the full year, there’s basically no merchandise margin expansion. I’m just kind of wondering if there’s — if that’s just a function of conservatism, if it’s — there’s something we should keep in mind for this year from a mix perspective or anything like that that might sort of hinder your ability to drive even stronger margins than what you are discussing on the call today?
Greg Hackman — Chief Financial Officer and Secretary
Yeah. Tom, we do expect to see merchandise margin expansion during the year, especially in line with growth in exclusive brands. So my guess is that I don’t have your model in front of me, but my guess is that maybe your sales number is different. So we can talk about that offline, if you’d like.
Tom Nikic — Wells Fargo — Analyst
Okay, cool. That’s helpful, thanks. Best of luck in fiscal ’20.
James G. Conroy — President and Chief Executive Officer
Thanks, Tom.
Greg Hackman — Chief Financial Officer and Secretary
Thanks, Tom.
Operator
We’ll go next to Mitch Kummetz with Pivotal Research.
Mitch Kummetz — Pivotal Research — Analyst
Yeah. Thanks for taking my questions. All right, Greg, I’m going to put you on the spot because you mentioned the sales. I didn’t see it in the press release. I was hoping we could take that online here. Is there a sales number arranged that you’re looking for the year?
Greg Hackman — Chief Financial Officer and Secretary
Yeah. We haven’t provided that. Perhaps we’ll provide it in the next quarter or later on, but right now we have not provided the ranges, you’re right.
Mitch Kummetz — Pivotal Research — Analyst
Okay. And then — so when I think about the puts and takes on gross margin, again, you gave us the leverage points. You mentioned the merch margin should be up for the year. I guess, I’m just thinking about — shrink has helped you guys, how do you think about shrink? Are there other things, other components of the gross margin line that we should be thinking about, either maybe part of merch margins or whether it’s — I would imagine private label is going to continue to help you, channel mix, I don’t know how you’re thinking about that. I don’t know how you are thinking about lapping like all the strong full-price selling. Is there any — are you adjusting anything for tariffs just yet? I mean, obviously, you’ve tried some commentary around tariffs, I don’t know if you’re taking — if that’s factored into the guide?
James G. Conroy — President and Chief Executive Officer
Right. So in terms of — you are right, exclusive brands, we will see increased or improved merchandise margin because of exclusive brand penetration. We aren’t incorporating into our guide any improvement in shrink. The accountants wouldn’t let us do that and so I’m not making a bet on that. So it’s planned at last year’s level. In terms of tariffs, we have baked in the increase of the — of — from 10% to 25%, that happened earlier this month. That’s embedded in our guidance. We do think that freight will be a little bit of a headwind this year. We didn’t see that last year. So we were able to offset that, but we do expect to see a little bit of pressure there, but that’s probably 15 basis points or so, like that.
Mitch Kummetz — Pivotal Research — Analyst
Okay. I guess, lastly — yeah, go ahead.
Greg Hackman — Chief Financial Officer and Secretary
I was just going to add — we do expect a little bit of improvement in terms of less clearance and fewer promotions, but again, that’s a pretty small piece of the overall margin story.
Mitch Kummetz — Pivotal Research — Analyst
Got it. And then lastly, I don’t if you want to volunteer any sort of cadence shape to the same-store sales guide for the year. Obviously, you’re not straight-lining it because you’re looking for a 6% comp in Q1 versus a 5% for the year, but is there any — again, I mean, can you provide any shape to that? Should we just be thinking about the compares? And I know you talked about a two-year stack, I don’t know if you guys think of things in terms of a three-year stack and how that might impact kind of the shape of the comp guide.
James G. Conroy — President and Chief Executive Officer
Yeah, it’s a great question, Mitch. And I guess, a couple of things. Number one, last year, we guided to a mid single-digit and said we’d be up plus 5% and so a two-year comp of plus 10% — or two-year stack of plus 10%. And this year, we’re saying a plus 5% on last year’s plus 10% gets you a plus 15% stack. We’ve guided that plus 6% for Q1 and that’s going up against 11.6% last year. So a two-year stack of 17.6%, which would be our second strongest two-year stack up against the quarter we just finished. So we feel good about the business, especially as we have pretty good insight into it. Further out, it’s a little bit trickier. The one call I’d make or remind you is that Q3, the days between Thanksgiving and Christmas are fewer. Right? This is the shortest period of time between Thanksgiving and Christmas and so there’s some conservatism, if you will, in terms of how we think about the business in that quarter. But overall, I’d say we’re not providing specific guidance beyond the current quarter we’re in.
Mitch Kummetz — Pivotal Research — Analyst
Okay. Fair enough. Thanks. Good luck.
James G. Conroy — President and Chief Executive Officer
Thanks, Mitch.
Operator
And at this time, I would like to turn the call back over to our speakers for any additional or closing remarks.
James G. Conroy — President and Chief Executive Officer
Thank you everyone for joining the call today. We look forward to speaking with you all on our first quarter earnings call. Take care.
Operator
That does concludes today’s conference. We thank you for your participation.
Duration: 58 minutes
Call participants:
Jim Watkins — Vice President, Investor Relations
James G. Conroy — President and Chief Executive Officer
Greg Hackman — Chief Financial Officer and Secretary
Matthew Boss — JPMorgan — Analyst
Jonathan Komp — Baird — Analyst
Peter Keith — Piper Jaffray — Analyst
Oliver Chen — Cowen and Company — Analyst
Paul Lejuez — Citi — Analyst
Tom Nikic — Wells Fargo — Analyst
Mitch Kummetz — Pivotal Research — Analyst
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