Maksim Rakhlenko • Cowen and Company

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CFO Jeff Howie reiterated that the company does not provide specific line-item guidance but is maintaining its full-year operating margin forecast. He acknowledged expected gross margin pressure from tariffs but expressed confidence that this would be offset by SG&A leverage and the company's 6-point tariff mitigation plan, allowing them to absorb incremental tariff costs.

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CFO Jeff Howie clarified that the operating margin guidance of 17.4% to 17.8% already includes the full impact of known tariffs. He stated that while tariffs create headwinds, these will be offset by ongoing supply chain efficiencies and SG&A savings. Howie emphasized that significant opportunities remain to improve supply chain metrics like returns and damages, noting that while margins might have been higher without tariffs, the guidance reflects the current reality.

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CEO Laura Alber confirmed that regular-priced sales are outperforming because the company is substantially reducing its promotional activity. She explained that this strategy benefits margins and enhances customer trust and pricing integrity, as shoppers do not need to wait for a sale to get a fair price.

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CEO Laura Alber responded that customers are not waiting for promotions and are responding well to newness at mid-to-high price points. CFO Jeff Howie stated that the current full-year guidance of 17.4%-17.8% is in the middle of their long-term mid-to-high teens target, demonstrating the sustainability of their profitability model even with sales pressures.

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CEO John Hazen explained that exclusive brand pricing decisions are made style-by-style, not by category, focusing on psychological price points like keeping a popular boot under $200. He noted that as third-party prices rise, Boot Barn's exclusive brands will become more attractive, creating an opportunity to gain share. Regarding the competitive set, Hazen stated that larger competitors remain rational and he has not yet seen signs of distress from mom-and-pop stores, though he acknowledged potential future challenges for them.

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CFO Jim Watkins explained that cannibalization is factored into new store models and has been manageable, allowing for high density in urban markets. Interim CEO John Hazen added that growth comes from both taking share and increasing spend from existing customers, and stated he is happy with the current assortment and is not planning a major shift toward fashion.

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CFO Jim Watkins noted that second-year comp stores outperform the chain average by 3-5 percentage points, but it's too early to call it a major tailwind. Chief Digital Officer John Hazen explained the ladies' boot assortment was reset to be more functional and include better opening price points, which has driven strong results, while denim has fueled apparel growth.

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CFO Jay Stasz stated that the historical 60% Q1 join relationship has not held true post-COVID and should not be used as an anchor. Regarding 'Click to Cancel,' he confirmed the rollout is underway to meet the May 14 deadline and is factored into the 2025 outlook. He noted the largest impact on churn typically occurs in the first couple of months before normalizing. CEO Colleen Keating added that a small test indicated the feature could potentially lift join conversions due to increased consumer confidence.

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CEO Colleen Keating expressed confidence in the strategic imperatives and the resources allocated to them, highlighting the pride and commitment to quality she's observed from franchisees. She noted their high opt-in rate (65%) for new strength equipment as a sign of confidence. CFO Jay Stasz added that comps will continue to be largely rate-driven through June, after which they will be driven by a mix of rate and member trends. He said a decision on a broader 'click-to-cancel' rollout has not been made.

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CFO Tom Fitzgerald explained that the lift from the price increase varies based on a club's existing Black Card member mix. He detailed the new club comp ramp as starting in the 40%+ range in year one, then moderating to teens and single digits. He also confirmed that a 10% corporate-owned club mix remains the company's target.

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CEO Lori Flees reported a stable competitive pricing environment but expects industry marketing spend to rise for the summer season. She expressed confidence in Valvoline's ability to continue winning market share. Flees clarified that while the pricing component of ticket was strong, it did not accelerate, with premiumization and net pricing being roughly equal contributors.

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Executive Ersan Sayman stated the company believes its China dependency is at a favorable rate compared to competitors and that its diversification across many countries is a key advantage, allowing it to adjust to geopolitical risks. CEO Tom Taylor added that he believes the sourcing model is a significant competitive advantage that will become more pronounced the longer the current environment lasts, potentially pressuring independent retailers who rely on middlemen.

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Executive Leonard Fluxman stated that medi-spa services continue to grow, representing 8-9% of service revenue, with no signs of deteriorating demand despite the higher price point. Regarding the GFC, he recalled it was a short but severe downturn where the business fared relatively well, with the primary impact being on retail attachment, which required some discounting—a measure not currently being used.

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CEO Leonard Fluxman noted that while major pricing actions were limited this year, there are opportunities for smaller price increases in 2025 and 2026, particularly as new, higher-value services are introduced. CFO Stephen Lazarus described the 2024 margin as a solid 'jumping off point' for future incremental improvements, expressing optimism for 2025 without providing specific numbers.

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CFO Stephen Lazarus explained that Q4 is a seasonally softer quarter due to ship repositioning, which is reflected in the guidance. Regarding capital allocation, he emphasized a balanced approach, utilizing flexibility between debt paydown, the new dividend, and opportunistic share repurchases, adding that the company is comfortable carrying its current manageable debt level.

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Gary Friedman, executive, clarified that guidance only includes pre-existing tariffs and it's too early to model costs for a supply chain re-architecture. Jack Preston, executive, noted the demand-revenue gap normalized in Q4, with revenue up 18% and demand up 17%. Management also stated they will no longer provide forward-looking demand guidance, shifting focus to revenue guidance.

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CEO Gary Friedman and executive Stefan Duban indicated that the gallery reset is still in its early stages, estimating it's about 35-40% complete. Friedman characterized the company as being in the middle of its transition, with the key positive indicators being growing demand and inflecting margins, rather than the level of clearance activity. He noted the company is in a deliberately 'inefficient stage' to support the transformation.

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