Participants

Mark Dedovesh; Senior Vice President of Investor Relations and Finance; Boot Barn

John Hazen; Interim Chief Executive Officer; Boot Barn Holdings Inc

James Watkins; Chief Financial Officer, Secretary; Boot Barn Holdings Inc

Matthew Boss; Analyst; JPMorgan

Peter Keith; Analyst; Piper Sandler

Steven Zaccone; Analyst; Citi

Max Rakhlenko; Analyst; TD Cowen

Ethan Saghi; Analyst; BTIG

Corey Tarlowe; Analyst; Jefferies

Jeremy Hamblin; Analyst; Craig Hallam Capital Group

Ashley Owens; Analyst; KeyBanc Capital Markets

Jonathan Komp; Analyst; Baird

Presentation

Operator

Good day, everyone and welcome to the Boot Barn Holdings Inc. third-quarter 2025 earnings call. As a reminder, this call is being recorded.
Now, I'd like to turn the conference over to your host, Mr. Mark Dedovesh, Senior Vice President of Investor Relations and Finance. Please go ahead, sir.

Mark Dedovesh

Thank you. Good afternoon, everyone. Thank you for joining us today to discuss Boot Barn's third-quarter fiscal 2025 earnings results. With me on today's call are John Hazen, Interim Chief Executive Officer; and Jim Watkins, Chief Financial Officer.
A copy of today's press release along with a supplemental financial presentation 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 during this call are forward-looking statements. These forward-looking statements reflect Brann's judgment and analysis only as of today. And actual results may differ materially from current expectations based on a number of factors affecting Bonn'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 third-quarter fiscal 2025 earnings release, as well as our filings with the SEC referenced in that disclaimer. We do not undertake any obligation to update or alter any forward-looking statements whether as a result of new information, future events or otherwise.
I will now turn the call over to John Hazen, Boot Barn's Interim Chief Executive Officer. John?

John Hazen

Thank you, Mark, and good afternoon. Thank you everyone for joining us on this call. I will review our third quarter of fiscal 2025 results discuss the progress we have made across each of our four strategic initiatives and provide an update on current business.
Following my remarks, Jim Watkins will review our financial performance in more detail and then we will open the call up for questions.
We are very pleased with our third-quarter results which reflect broad based growth across all major merchandise categories in stores and online and across all geographies. During the quarter revenue increased by 17%, including consolidated same store sales growth of 8.6%.
Same store sales in both the stores and e-commerce channels were positive with stores increasing 8.2% and e-commerce increasing 11.1%. We also opened 13 new stores in the quarter bringing our year-to-date total to 39 new units from a margin perspective. Third quarter, merchandise margin expanded 130 basis points driven by supply chain efficiencies, better buying economies of scale and growth in exclusive brand penetration.
The strength in sales and margin combined with solid expense control resulted in earnings per diluted share of $2.43 during the quarter, which was $0.36 above the high end of our guidance range and compares to a dollar 81 of earnings per diluted share in the prior year period included in our third quarter, earnings per diluted share is an approximately $0.22 benefit related to the CEO transition. I am extremely pleased with our third quarter results and I am very proud of the entire team's execution and dedicated effort during the critical holiday season and we will now spend some time discussing each of our four strategic initiatives.
Let's begin with expanding our store base. We opened 13 stores in the third quarter ending the period with 438 stores in 46 states. Our new store engine continues to meet our sales earnings and payback expectations throughout all regions of the country. As a reminder, we model new store performance at $3 million of revenue with a cash-on-cash return on capital of approximately 60% in the first year of operation.
We have 21 planned store openings in the fourth quarter which would bring the fiscal year total to 60 new stores open, meeting our commitment of 15% new store growth annually. We continue to expand our store footprint across the country as we expect to open stores this quarter in Alaska, Vermont and Rhode Island, which would bring our total store presence to 49 states.
Given the consistent success of our new store openings across all geographies. We believe that we have the market potential to double our store count in the US alone over the next several years.
Moving to our second initiative, driving same store sales, third quarter, consolidated same store sales grew 8.6% with brick and mortar, same store sales increasing 8.2%. Store comp growth was driven by a 6% increase in transactions plus a 2% increase in UPT which drove a large, a larger average transaction from a merchandise category perspective. The third quarter comp sales were positive across all major merchandise categories led by the Combined Ladies Western boots and apparel businesses which comped positive low double digits.
This was followed by the combined men's Western boots and apparel business which comped positive high single digits, our denim business which is included in the figures just mentioned. Comped low double-digit positive and our combined work boots and apparel business comped low single digit positive in the quarter.
From a store operations perspective, I am very proud of our field organization across the country for contributing to another successful holiday season. They continue to provide best in class customer service while driving record sales volume and hiring over 5,000 seasonal store associates from both a supply chain and merchandizing perspective.
We were extremely pleased with the smooth flow of inventory through our distribution centers and stores and our overall preparation for the holiday season, which we believe contributed to the strength of our third quarter results during store visits leading up to Black Friday.
And throughout the entire holiday season, we consistently received positive feedback from our store associates. Many of them highlighted how the earlier preparation, particularly advanced floor sets and inventory availability enabled them to better prepare for the anticipated holiday shopping surge, ultimately enhancing their ability to meet customer demand and maximize sales from a marketing perspective.
The team continues to expand our brand awareness and carefully tailor communication to each of our customer segments. We believe the use of radio, direct mail artist collaborations, digital advertising and connected television has expanded our customer reach and driven increased traffic to our stores.
These efforts have also increased the number of active customers in our loyalty program to 9.4 million, a 15% increase over the prior year period.
Moving to our third initiative, strengthening our Omnichannel leadership e-commerce sales grew 11.1% in the third quarter. We are very pleased with the consistent strength of our online business and the team's partnership with the field organization during the critical week between Black Friday and Christmas, we were able to ship approximately half of our online orders from our stores.
A result of our in store inventory being accessible to online customers from an organizational perspective. We are happy to announce that John Kosoff has been hired as our new Chief Digital Officer. John was previously the Chief Digital Officer at Tilly's and prior to that was the Vice President of e-commerce and Marketing at Taco Bell. John brings a wealth of experience to our team and his leadership will allow me to focus on my efforts on my current role.
Now to our fourth strategic initiative, merchandise margin expansion and exclusive brands during the third quarter, merchandise margin increased by 130 basis points compared to the prior year period driven by supply chain efficiencies and better buying economies of scale exclusive brand penetration increased by 180 basis points, which was on top of 310 basis points of expansion in the prior year period, we continue to believe we can achieve merchandise margin expansion through a combination of supply chain efficiencies that are buying economies of scale and growth in exclusive brand penetration.
Turning to current business through the four weeks of our fiscal January, we have continued to see broad based growth in same store sales on a consolidated basis. Fiscal January, same store sales have increased 8.3% with our store comp increasing 7.2% and our e-commerce business increasing 17.1%. We feel very good about the current tone of the business and the start to our fourth quarter.
I'd like now to turn the call over to Jim Watkins.

James Watkins

Thank you John. In the third quarter, net sales increased 16.9% to $608 million. The increase in net sales was the result of the incremental sales from new stores and the increase in consolidated same store sales. The 8.6% increase in same store sales is comprised of an increase in retail store, same store sales of 8.2% and an increase in the e-commerce same store sales of 11.1%.
Gross profit increased 20% to $239 million compared to gross profit of $199 million in the prior year period.
Gross profit rate increased 100 basis points to 39.3% when compared to the prior year period, as a result of a 130 basis point increase in merchandise margin rate partially offset by 30 basis points of deleverage in buying occupancy and distribution center costs.
The increase in merchandise margin rate was primarily the result of supply chain efficiencies, better buying economies of scale and growth in exclusive brand penetration. While the deleverage in buying occupancy and distribution center costs was driven by the occupancy costs of new stores selling general and administrative expenses for the quarter were $139 million or 22.9% of sales compared to $124 million or 23.8% of sales in the prior year period.
SG A expense as a percentage of net sales decreased by 90 basis points, primarily as a result of the forfeiture of incentive-based compensation related to the CEO transition. Income from operations was $99 million or 16.4% of sales in the quarter compared to $75 million or 14.4% of sales in the prior year period.
Net income was $75 million or $2.43 per diluted share compared to $56 million of net income or a $1.81 per diluted share in the prior year period.
Turning to the balance sheet. On a consolidated basis inventory increased 23% over the prior year period to $690 million and increased approximately 1% on a same store basis. We finished the quarter with $153 million in cash and zero drawn on our $250 million revolving line of credit.
Turning to our raised outlook for fiscal 2025. The supplemental financial presentation that we released today outlines the low and high end of our guidance range for both the full year and the fourth quarter. I will be speaking to the high end of the range for both periods in my following remarks.
As we look to the fourth quarter, we expect total sales at the high end of our guidance range to be $460 million. We expect consolidated same store sales to increase 7.8% with a retail store, same store sales increase of 7.2% and an e-commerce same store sales increase of 12.1%.
We expect gross profit to be $168 million or approximately 36.5% of sales. Gross profit reflects an estimated 120 basis point increase in merchandise margin, partially offset by 60 basis points of deleverage in buying occupancy and distribution center costs.
Our income from operations is expected to be $51 million or 11.2% of sales. We expect earnings per diluted share in the fourth quarter to be a $1.26. And our effective tax rate is estimated to be 25.4%.
Based on our third-quarter performance and fourth-quarter outlook, we are raising our full year guidance for the full fiscal year. We now expect total sales at the high end of our guidance range to be $1.92 billion, representing growth of 15% over fiscal '24.
We now expect same store sales to increase 5.9% with a retail store, same store sales increase of 5.4%. And e-commerce same store sales growth of 10.2%. We now expect a gross profit to be $716 million or approximately 37.4% of sales.
Gross profit reflects an estimated 110 basis point increase in merchandise margin driven by supply chain efficiencies, better buying economies of scale and growth in our exclusive brand penetration of 100 basis points.
Our income from operations is expected to be $241 million or 12.6% of sales. We expect net income for fiscal '25 to be $182 million representing growth of 24% over fiscal '24. We now expect earnings per diluted share to be $5.9, a 30% increase from our prior guidance of $5.60.
We continue to expect our capital expenditures to be $120 million. We expect to open 21 stores in the fourth quarter and 60 new stores this fiscal year or 15% new unit growth.
Now, I would like to turn the call back to John for some closing remarks.

John Hazen

Thank you, Jim. We are very pleased with our third-quarter results and we believe we are well positioned for a strong finish to our fiscal year. I would like to thank the entire team across the country for their dedication to board and our customers.
Now, I would like to open the call for questions.

Question and Answer Session

Operator

We will now begin the question-and-answer session. (Operator Instructions)
Matthew Boss, JP Morgan.

Matthew Boss

Great, thanks and congrats on another nice quarter.

James Watkins

Thank you, Matt. Thank you.

Matthew Boss

So John, maybe to start off, could you elaborate on traffic and demand that you're seeing across categories in January or just any areas of continued momentum, post holiday? And then as we think about moving forward, any change in the business as you're thinking about it relative to the historical low to mid single digit comp algorithm.

John Hazen

Yeah, I'll start with the first part and then, and then get to the second question. So as we got into January and we of course, have to start with January is the smallest month of our fourth quarter, four week, you know, post holiday and then we get into February and of course, our five week March, but looking at the specific departments in January, we saw an acceleration in both men's and women's left categories, specifically boots and apparel. So we saw nice business in those four major merchandise categories.
As we look forward to the remainder of the quarter. There, there's nothing that, that we're seeing. That makes us feel any different about the business. It was a strong start to our fourth quarter and we think that will continue Easter, of course, has pushed out into our next fiscal year, but that's a very, very small piece of our business. So we're not expecting any major impact from that.
And then as we look to next year again, too early to guide. But, we always say we like to start with the, with the low mid single digit algorithm and start to build our budget from there. But again, we're too early to guide or talk about next fiscal year.

Matthew Boss

Great. And then maybe Jim, just as we think about merchandise margin and multiyear drivers of merchandise margin, could you help break down what remains whether it's private label and just by basically how to think about some of the remaining levers in the merchandise margin?

James Watkins

Sure, as we look to Q4 and, and I'll start there and then go bigger picture. We expect to see the merch margin driven by the same drivers we've seen in third quarter and much of this year.
We're guiding that fourth-quarter margin up 120 basis points with a little more than half of that increase driven by supply chain efficiencies and the balance coming from better buying economies of scale vendor discounts and 200 basis points of exclusive brand penetration.
As we get to next year, the supply chain efficiencies really started about a year ago. And so we've seen the benefit of those throughout this year, roughly 70 basis points of improvement on this year. Those will stay with us, but we're not planning those to continue with us in improving in any significant manner.
So right now, I'd strip those out as we look to merchandise margin drivers. Outside of those as we get into next year, we tend to think of the baseline as being 30 or 40 basis points of merchandise margin expansion. We expect that over the next five years or so, we will average roughly 200 basis points of exclusive brand penetration growth.
So maybe half of that 30 to 40 basis point comes from continued exclusive brand penetration growth. And then the other half coming from better buying economies of scale that we've seen this year. It's really partnering with vendors and and continuing to see the volume discounts that they've given us whether that's us taking possession of a full container load of product and getting a better discount or the scale that we've been growing at and the growth our vendors have seen has allowed us to go back and get some some discounts from our vendor partners and they've been really cooperative in that.
And we expect to continue to see those discounts increase as we move over the next five years.

Matthew Boss

Great congrats again.

Operator

Peter Keith, Piper Sandler.

Peter Keith

Thank you. Good afternoon. So John at IC R a couple weeks ago when you were describing fiscal Q3, you talked about it wasn't really a fashion trend or anything. You, I think you're attributing a lot of the strength to just execution and and bringing in more inventory. So I guess the heart of the question is, do those element now continue with January and, and, and the rest of this fiscal Q4 and maybe even in the in the coming quarters, did note inventory does remain elevated? Not thinking about it as a mark down risk, but is this an investment that you think will continue to drive same store sales growth?

John Hazen

Yeah, Peter, I do looking at January as we came out of Q3 from an inventory standpoint, we're, we're very happy where we ended the quarter and began our fourth quarter. Our markdown inventory is lower than it was last year and lower than, than pre COVID times. So I feel that we're in a very good inventory position without a fashion risk.
As I talked about when we were at IC R, I took another peek at, the top 200 products selling, which make up a disproportionate amount of our sales and, nothing stood out as high fashion. So we feel that it's not a fashion business. We are in a good position, inventory wise, not seeing any supply chain disruptions. So feel quite good about the inventory position and the type of inventory as we go into this fourth quarter into next year.

Peter Keith

Okay. Very good. And, and, and maybe just following up on the last question with the merch margin expansion remaining quite impressive. The supply chain efficiencies, Jim could, could you speak to that?
It seems like there's both a combination of lower rates and then you're leveraging a more centralized distribution center deliveries to the store. Are, are those dynamics going to get lapped or is that something that you'll continue to try to leverage for several years?

James Watkins

Yes, we will continue to focus on finding efficiencies and leveraging those. I just don't want people to, to put in their models another year like we had this year as far as efficiencies as we get to May, we'll fine tune that. And as we, as we build those, those up from really the bottom bottoms up, we'll, we'll really be able to give you a better number on that.
But it's probably going to be in that 10 basis point, maybe increase next year, not 70 or 60 basis points. And, and just to give you some more detail on that as you call that it wasn't negotiated rates or renegotiated rates with the shipping logistics partners and we'll continue to work with them. And as we get scale, we expect to see better rates with them. The Kansas City Distribution Center that went live over a year ago. We really have been seeing some nice efficiencies there.
Our folks in Fontana have continued to operate at a very high level and helped with efficiencies. And so we don't expect those to, to top out at this point and expect to see some more efficiency there, but it's not going to be in the same tune of what we saw this year.

Peter Keith

Okay. Very helpful. Thanks so much guys.

John Hazen

Thanks Peter. Thanks Peter.

Operator

Steven Zaccone, Citi.

Steven Zaccone

Great. Good afternoon. Thanks very much for taking my question. First question was on the top line. You know, clearly the business is seeing a lot of strength. Are there areas where you'd like to see incremental improvement over the course of calendar 2025 whether that's by channel or product category and then along those same lines, what gives you confidence you can comp the comp in some of these, categories where you've seen improvement already. Like ladies and men's western.

John Hazen

Yeah, I'll jump in with where we'd like to see some improvement as we talked about this sequential improvement in January over Q3 in men's western boots and apparel, women's western boots and apparel. Of course, something had to have a, more of a struggle and that was work boots. So, there's no crisis in work boots by any means. But we'd like to see our work boots perform better and we're doing some work around each brand lace up versus pullon to figure out what more we could do on the work boot side. So work boots is the one place I'd like to see some improvement in the business.

James Watkins

And while not guiding next year by a category or guiding next year at all. At this point, the strength we have seen in denim, we expect that to continue to, to be with us. We also have some easier comps in the ladies business early on in the year and we have some really nice momentum in that business. And so we would expect to see that carry forward. And, and, and the men's business has been really strong all year and really for longer than a year, we expect that momentum to continue with us. But the ladies have a little bit easier path to comping the comp.

Steven Zaccone

Okay. That's very helpful. And then I hate to be the guy that asked the tariff question, but just given some of the headlines, can you just help us understand your current exposure to Mexico? Maybe how you're reacting to some of these headlines? And then remind us what happened the last time when tariffs were put into place. You know, how did you go about negotiating some of that pricing with vendors versus passing it on to the consumer?

John Hazen

Yeah, we're as a reminder, we're 30% on order with China, 25% on order with Mexico. China's more rubber soled performance boots and apparel, of course. And then Mexico is where we make our leather soled cowboy boots and, and we're the, some of the best leather sold cowboy boots or most of the leather sold cowboy boots are made.
We are testing other countries, but we're not going to overreact right now. There are great boots made in Mexico and there's, supply chain efficiencies we're looking at in terms of how we bring those boots up and how we go about manufacturing those boots and then putting some pressure on our vendors and then, we will maintain margin.
So we'll have to pass if there is a significant tariff, we're going to have to work on getting better pricing some economies of scale on the supply chain and perhaps passing some of that price increase on to the customer to maintain our margin. Profile.

James Watkins

It really kind of depends, Steve, what the, what the tariff number is, right? That the 1st 10% or so is a little easier to navigate through than, than the 2nd 10% if it goes up higher than that. And our, our last time we were able to get some concessions on pricing from our, our, our third party vendors as well as our, our factories on the exclusive brands.
We would expect to see that again. And there were some price increases that we did pass through last time and, and that's as John mentioned, that's, that's what we'd be looking at as well.

Steven Zaccone

Okay, thanks for that detail. Best of luck during rodeo season.

Operator

Max Rakhlenko, TD Cowen.

Max Rakhlenko

Hey, thanks a lot guys and congrats on the continued momentum.
So first question is, how are you guys thinking about density and cannibalization? How close can you get some, some stores near one another? And what do you see happening with mature stores when a new store does open nearby and then separately, how do you think about taking share from peers versus growing the entire market when you continue to grow penetration in various cities?

James Watkins

Sure, I'll jump in on that one max. As far as the density and, and cannibalization, it really depends on the market. If it's a, a more rural or even a, a suburban market, we tend to put those stores farther apart, obviously than, than if we're in a densely populated area, think Houston, and, and Dallas, Southern California, Phoenix area, we've been able to put stores, within 10 miles of each other and still see some really nice success as we go into our approval meetings and looking at real estate, we'll factor in any cannibalization into the payback.
So we've got a clear that the new store that's being proposed has to clear the hurdle of the cannibalization from the store that it has. We have not seen a as much cannibalization as we would have thought we would have seen going back several years.
We are approving deals that have some level of cannibalization and we factor that in and they're paying back nicely. And so it's a long answer to the first part of your question max, but it really depends on the market and how rural it is in determining the density.
Your second question was around or second part of the question was around mature stores. And, and what we're seeing around mature stores, the new stores are on a nice path to get up to that mature store level. The waterfall we've talked about over the last couple of quarters is starting to plan for everybody's benefit on this call. Stores used to open at you know, $1.7 million when we first went public with our, with our target, about 75% of what a mature store does and waterfall up to maturity over the course of five or six or seven years.
It looks like we're seeing that since the stores that we've opened over the last three years or so, have been opening at $3 million or north of $3 million. We're seeing that 2nd year of comp, outperform the chain average by about five points. And while still a little bit early, that 3rd year of comp is also outperforming not as, not as much as that 2nd year comp, but outperforming the chain average. One interesting thing that, that came up this morning when we were going through some, some reports is we went back and looked at stores that had opened 6 to 8 years ago and in year one, those stores averaged $1.9 million in sales. And today, on average, those three years of of stores are doing $3.8 million. So they've doubled their sales volume over the last, since they've opened in that six to eight year period.
And then as far as the third part of your question, taking share from local competitors, Yeah, we, we've put out some surveys in the past and, and some of our slide decks and talked about how we're, we're taking share from others in the trade area. And we're also seeing some nice improvement from existing customers that have been with us for, for quite a while and growth and what they're, they're purchasing. And so whether that's them purchasing more, more of the product, is probably taking some share from where they used to purchase these additional items. Years ago.

Max Rakhlenko

Got it. And then John, are there any changes or pivots that you'd like to see made to the product assortment either on the Western or work side, including fashion versus function and just any other areas where the business could evolve on the product side now?

John Hazen

No, I mean the no, we're very happy with our assortment. We're not going to lean in, of course, more fashion. I talked about some of the small challenges we're facing on the work side. So those are worth calling out, probably the, and this isn't a large change at all, but a small tweak might be the, as we open this aperture to the just country customer and increase the TAM by $15 billion. As part of that, we could go after that. Just country customer a little more. That's perhaps more folks who weren't going to wear a cowboy hat. Now they're wearing a baseball hat, maybe it's some different denim shirts that don't always have a traditional Western Yoke, those sorts of things. But in general, we're quite happy with the four segments and the product assortment we have for those four segments.

Max Rakhlenko

Got it. Things like guys and best of luck in fourth quarter.

James Watkins

Exactly.

Operator

Janine Stichter, BTIG.

Ethan Saghi

Hi, you got Ethan Saghi on Janine. Thanks for taking my questions. Could you provide some more detail on the opportunities you see going forward in private label, particularly for men's and work?

John Hazen

Yeah, we, so we have our Hawks exclusive brand and Cody James. Cody James has always leaned a little more Western. I think oil workers pull on work boots and then, and then we've had Hawks which has been more competitive with what you, what most folks probably think of as traditional Western brands with lace up work boots.
The lace up work boot is probably the one we see more opportunity with on the work site. Hawks has turned into a really nice business for us and we think there's more upside in Hawks as it's a newer business in the B barn portfolio. Cody James is not mature by any means, but that kind of more traditional work assortment when you think work that Hawks is, I think has some nice potential for us.

Ethan Saghi

Got it. That's helpful. And then just one more for me. You previously talked about some of the temporary factors impacting expense leverage this year. And I know you laid out some of the groundwork for merch margin expansion next year. But could you talk about some of the other margin drivers you see for next year and where you see some of the leverage points shaping up for certain line items.

James Watkins

Yeah, it's a little early to talk too much about the detail of next year and, and how the things are going to roll up different expense line items in SGNA.
But a couple of things, I'll point you to this year, we had some outsized increases in our, in our lease expense related to our new corporate headquarters. And so we saw a step up in that and that should be flat next year to maybe a little bit of a benefit as we've talked about that on the call. So that should be a help to SG&A This year, we also were up against a pretty low incentive based compensation given, given the performance of the company a year ago on the growth level anyway. And, and so this year, we've built back some of that incentive based compensation that's been a drag on the business even with the reversal that we talked about. You know, with Jim leaving last quarter and, and some of the expense reversal we had with that, it's still a headwind this year compared to last year. Despite the tailwinds of Jim's departure. And so next year, as we get into the planning around the incentive based comp that should be a little bit of a positive for us. Other line items in there around insurance and that sort of thing. We'll have to work through the renewals and see where, where those are, those are coming and build that up. We also had a legal settlement charge this year that shouldn't repeat with us next year. That was pretty sizable. So those are some of the things that we're starting to think about as we look into next year, but not anything significant or meaningful that we see on our radar that we need to expense besides just some normal growth in the business, adding some additional head count to support the, 60 to 70 stores that will open next year, 65 to 70. I should say that, that we plan to open next year. You know, new regional Vice President District Manager, some of the support team that we need to support that growth, but nothing in that I think would be meaningful on the on the P&L SG&A.

Ethan Saghi

Got it really appreciate all the color. I'll pass it on.

James Watkins

Yeah, thank you then.

Operator

Cory Tarlowe, Jeffries.

Corey Tarlowe

Great thanks and, and good afternoon. John, I just wanted to ask on the increase in transactions that you've seen. It obviously speaks to the really continued health of the business in my view. Could you just talk about if there's any sort of behaviors that you're seeing that are changing. I think your customer visits you twice a year on average. But is that new customers, is it existing customer visiting more frequently? Would just be curious to get a little bit more flavor around the health of the transactions that you've seen?

John Hazen

Yeah, so yeah, the plus eight and change for the quarter six points of that coming from transactions, which is our proxy for traffic.
I hate to give a boring answer but we spend a lot of time looking at our customers by income demographic, by customer segment and the health of our customer and the frequency that our customers shopping is very consistent across the income brackets. It's also very consistent between the penetration of Western work wonderwest fashion and just country. So we haven't seen any real swings we have reassorted over the last year.
Our kind of good, better best and feel that we are, we are nicely positioned and you know, at the best level with exotic boots and seven for all mankind jeans. And then at the at the good level, we've got some new Western shirts that are performing very well and we feel good about the level of product and inventory we have in our stores for the customer that might be at that lower income bracket. So all that to say it's been incredibly consistent and I think part of that is full credit to the merchandizing team for having the product at each level of good, better and best to meet those customers' needs.

Corey Tarlowe

Understood, very helpful. And then I guess for, for Jim, you talked about in response to a prior question, I think it was 30 to 40 basis points of merchandise margin expansion. Long term. Is there any way to also think about as you continue to add these new stores, what the B and OD leverage component would be? And theoretically, I would think that should lessen over time as you continue to scale and build out the infrastructure. So I'm curious what that aspect might look like over time if you have any color on that.

James Watkins

On the buying and occupancy, deleverage, it's really a function of growing 15% new units a year and then the next two years or so, we'll, we'll have the hurdle on rate of having increased our store openings from 10% new units a year to 15% new units a year. And so that puts some pressure on that. I'm not going to provide a, a guide on what the leverage points will be for for the next few years.
We talked about roughly 6% same store sales growth in order to leverage buying and occupancy was the number we put out there this year. It's, it's probably a good baseline for next year to put in your, in your model, but we'll give you an update on that when we get to the May call the, as we start to cycle the 15% new units opening.
And we're seeing the new stores that we've opened at these higher volumes at the higher flip waterfall over the next couple of years that does help that leverage point a little bit, but I don't think that comes down to a three or four comp, it maybe comes down a half point or point as far as the comp needed to leverage that the fastest thing we could do to leverage buying and occupancy and distribution center costs would be to stop opening new stores.
That would help the rate it would hurt the earnings dollars. And so that's something that we're not looking at. So it's, it's something that will be with us for a while as we continue to open at this clip. So that's, that's how we're looking at it.

Corey Tarlowe

Got it. Thank you much, very much. Very helpful.

James Watkins

Correct.

Operator

Jeremy Hamblin, Craig Hallam Capital Group.

Jeremy Hamblin

Thanks and congrats on the strong results. I first wanted to just come back to making sure I understood, you know, some puts and takes here and thinking about SG&A on a on a go forward basis. So I think just the math on a pre tax basis on the CEO transition benefit in the quarter, I think works out to about $9 million pre tax. I wanted to get confirmation that and, and also just confirmation that all of that falls just in the third quarter.

James Watkins

The $6.7 million. It is -- is the SG&A number. It's not a $9 million number, Jeremy. It's, it, and it's really a function that the, those costs or those, the reversal of the of expenses were not tax deductible. And so they flow completely to the bottom line into, into net income.
So it was a $6.7 million reversal of that expense in the quarter. And yes, that was a one time that was with us that you reverse the multiyear incentive based stock comp and then any, any annual incentive award that was being accrued thus far this year. So that, that will not be a benefit as we go forward as far as there won't be any more to reverse out of the piano.

Jeremy Hamblin

Great, thanks for the color and then I just switching gears here to thinking about you know, merchandizing product assortment. As we look forward, you've had a, tremendous amount of success here. You know, and a lot of momentum recently, you mentioned what you're seeing in men's and women's and in the western side. But as we look ahead, I wanted to get a sense, John, what, what you were thinking in terms of, specific categories that you feel there's real opportunities here as we get into FY26. Where do you, where do you kind of the best opportunities? Maybe something that you didn't execute as well on in FY25 or you know, other specific categories where you feel like maybe there's opportunity, exclusive brands or otherwise.

John Hazen

Yeah, I think that the biggest one that comes to mind is continuing what we accomplished in the third quarter there. I mentioned it in my opening comments, but it was very eye opening to see the commentary from the store partners or associates as we visited 20 plus stores during the holiday season, about the level of inventory, the freshness of the inventory being in stock in denim, those things weren't necessarily true the entire year. So I think the holiday season and how well the merchandizing and planning teams and the store operations teams executed that holiday season is something that has reenergized how we're going to approach inventory and assortment planning as we get into. As we get into next fiscal year or so, in terms of trends, if that's where you're going, we're not seeing any big shifts in trends, we're not seeing, a move, much deeper into, flannels or Western yokes, anything of that sort. Our denim continues to be mostly bootcut. We're not seeing, you know, contemporary silhouettes like, barrel jeans and things of that selling in our store. We've tested a couple. So I think it's pretty steady in terms of the aesthetic and what we sell. It's really how we prepare for the, for some of the larger selling seasons like rodeo season as we get into it, we feel very energized by the performance from the holiday season.

Jeremy Hamblin

Great. Thanks for taking the questions and best wishes.

John Hazen

Thank you.

Operator

Ashley Owens, KeyBanc Capital Markets.

Ashley Owens

Thanks for taking the question just, just one quick for me here, but we kind of wanted to talk about the A TV and maybe some of the decline you're seeing there quarter to date in the fourth quarter. Just any big change in trend that you're noticing, maybe pricing or just a mix shift, any color you could provide, there would be helpful.

James Watkins

So sorry, I don't know if you cut out what you, you're asking if the average transaction value. Was that what you're asking if that declined during the quarter? Sorry if I missed that.

Ashley Owens

Yeah, and more. So on quarter to date. And four too.

James Watkins

Yeah. So looking at the comps for the, for the third quarter, we comped up, 8.6%. We've guided the fourth quarter, 7.8% so far in January, we're up 8.3%. So we, we've seen some really nice continued growth in the, and those are all transaction based numbers. And, and the, if you look at the basket size or the, you know, that, which is a mix between the units per transaction that was up to during this last quarter. And the aur was kind of flat for us in the third quarter. We would expect to see the growth that we're seeing in January.
I guess January has followed a consistent pattern as far as the aur being flat as up to being up a little bit and really being led by transactions, the, as we get through the rest of the quarter, we expect that trend to continue as far as the maybe where you're going with this, this question is on the same store sales and that the fourth quarter guide is a little bit below the third quarter guide, despite January still being a plus eight.
And we, we've looked at the, trends over the last four months, you know, third quarter and in January and we looked at historical seasonality and how that rolls out into February and March. And that's really how we've guided that quarter, which while down just a little bit from a deceleration from a plus 8, 6, a plus 7, 8 is a -- is we feel a very, a strong guide and, and reflective of what the recent trends in the business is part of that in March. We do have a little bit tougher comp than we have in January and February.
But didn't feel like like guiding something above a 78 was was appropriate.

Ashley Owens

Great. Thank you.

Operator

Thanks, Ashley. (Operator Instructions)
Jonathan Komp, Baird.

Jonathan Komp

Yeah. Hi, good afternoon. Thank you. I'm sorry if you touched on this already, but I'm I'm curious if you could share more light on the e-commerce acceleration, the performance looks very good there. And I'm wondering if there's anything specific that, that you'd highlight in terms of the execution or, or other drivers?

John Hazen

Yeah, the ecom business is driven, of course mostly by barn dotcom. More than 75% of our ecommerce business is from bootbarn.com. She's Amazon business and country Outfitter are nice businesses, but all those together make up the remainder of the business. The ecommerce business is driven by transactions and and of course, we know traffic on site. So it is a traffic driven business which is, which is the best answer in Q3.
For example, we had over a million people visit our store locator page on bar dotcom. Our goal is always to take an ecommerce customer and turn them into a stores customer. But we're seeing nice business on ecommerce driven by traffic and some of the gains we're seeing on the Google paid side, it's called PMAX for those who care.
But Google has a tool that has been very good at finding us new customers. And we, we'll never chase an unprofitable transaction from an e-commerce standpoint. We hold ourselves above a four on return on advertising spend. And we've been able to find more customers that match that gate that we put on ourselves.
So we've had better luck finding new customers and prospecting customers online. It's driven a lot of traffic to the site and conversion has been relatively steady. Of course, it came down in January versus the holiday quarter, but it is flat in January year over year and it really is a traffic story.

Jonathan Komp

Yeah, that sounds encouraging. And then just as we think about the stores, I know, you're not a promotional driven business, but just a few of the, your typical campaigns and, and things that run during the year. Any, are you thinking any differently as you look ahead? You know, the next few quarters about any of the plans there? Thanks again.

John Hazen

I think one of the only small tweaks we'd make is we've been happy with how connected TV has performed and we've been very happy with some of our artist collaborations. So we're going to, we had Jelly Roll Morgan Wallen, Kin Leone last year and we feel good about continuing to look for opportunities with different artists.
And of course, we have the long term relationships with Miranda and Brad that have been incredibly successful. So we will continue to lean into artist collaborations, sponsoring Morgan's Festival down in Gulf Shores of Alabama. Coming up this spring, I send in my boots. We it will be the boot barn stage that is going very well and continue to use traditional radio.
So we're not a big fan of connected radio. We're a bigger fan of connected TV, allows to, allows us to get into markets that would otherwise be too expensive for some of our media buys. So that's a quick summary of how we're thinking about next year.

Jonathan Komp

Yeah, that's great. Thanks again.

James Watkins

Thanks John.

Operator

This concludes our question-and-answer session. I would like to turn the conference back over to John Hazen for any closing remarks.

John Hazen

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

Operator

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.