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Boot Barn Holdings Inc (NYSE:BOOT)
Q3 2021 Earnings Call
Jan 25, 2021, 4:30 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good day, everyone, and welcome to the Boot Barn Holdings Third Quarter Fiscal Year 2021 Earnings Call. As a reminder, this call is being recorded. Now, I'd like to turn the conference over to your host, Mr. Jim markets, Senior Vice President of Finance and Investor Relations. Please go ahead, sir.

Jim Watkins -- Senior Vice President, Finance and Investor Relations

Thank you. Good afternoon everyone. Thank you for joining us today to discuss Boot Barn's third quarter fiscal 2021 earnings results. With me on today's call are Jim Conroy, President and Chief Executive Officer; and Greg Hackman, Chief Operating Officer and Chief Financial Officer. A copy of today's press release is available on the Investor Relations section of Boot Barn's website at bootbarn.com. Shortly after we end this call, a recording of the call will be available as a replay for 30 days on the Investor Relations section of the company's website. I would like to remind you that certain statements we will make in this presentation are forward-looking statements.

These forward-looking statements reflect Boot Barn's judgment and analysis only as of today, and actual results may differ materially from current expectations based on a number of factors affecting Boot Barn's business. Accordingly, you should not place undue reliance on these forward-looking statements. For 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 2021 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 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, I will discuss the highlights of our third quarter results, briefly walk you through each of our four strategic initiatives and then provide an update on current business. Following my remarks, Greg will review our financial performance in more detail, and then we will open the call up for questions. We are extremely pleased with the strength of our third quarter results through what continues to be a difficult macro environment. During the third quarter, consolidated same-store sales increased to 4.6% cycling a 6.7% increase in the year ago period. Same-store sales in our physical locations returned to positive territory, increasing 1.9% with growth driven by an increase in basket size, which more than offset a mid-single-digit decrease in transactions.

Our e-commerce business remained strong during the quarter, with sales up 16.3% over the same period last year. Importantly, our momentum accelerated as the quarter progressed with same-store sales up 1.7% in October, 4.3% in November, and up 6.2% in December. The sequential improvement each month was primarily driven by store comps improving from approximately flat in October to up 3.3% in December. We are extremely pleased with the return to positive comps in our brick and mortar stores, particularly in light of the pandemic. From a margin perspective, our third quarter merchandise margin remained strong, both in stores and online resulting in consolidated merchandise margin expansion of 150 basis points during the quarter.

The strength in merchandise margin was driven by better full price selling and reduced promotions. It is a testament to the ongoing strength of the brand that we can continue to grow top line sales without resorting to discounts or promotions to drive traffic. The combination of strong full-price selling, reduced promotions and expense management resulted in third quarter earnings per share of $1 compared to $0.85 in the prior year. When adjusting for the tax benefit from share-based compensation in both years, we grew earnings per share 22% to $0.99 compared to $0.81 in the prior year period. I am extremely pleased with our earnings growth despite ongoing headwinds from COVID-19 including pressure in oil and gas markets, reduced tourism, rising case counts across the country and the ongoing lack of rodeos and concerts.

The fact that we grew earnings per share more than our long-term growth algorithm of 20% while facing the adversity associated with COVID and the softness in oil markets truly speaks to the strength and diversity of the business. I would now like to provide an update on each of our four strategic initiatives beginning with driving the same-store sales growth. During the quarter, we saw sequential improvement in the retail stores business with the stores returning to positive comps and gaining momentum through the month of December. Our same-store sales results during the quarter were fueled by sequential improvement across each of the three geographic regions of stores. The West region, which includes California continued to outperform and posted solid year-over-year growth. The South region, which includes Texas showed the most sequential improvement of the three regions from Q2 to Q3, but remained negative with respect to same-store sales growth.

The North region delivered same-store sales that were nearly flat for the quarter. From a merchandise perspective, we are encouraged by the broad-based improvement in category performance. Every major category with the exception of work apparel and men's western boots grew versus the prior year. Work wear remain our strongest performing category with growth in both lace-up and pull-on styles. Additionally, we saw healthy growth in kids boots, hats and belts as well as both men's and ladies western apparel, which were driven by solid gains in denim. Demand for our FR work apparel business was soft in the third quarter as a result of top line pressure in many of our oil markets while sales of non-flame resistant work apparel showed positive growth as the customers' need for functional product continues to be healthy.

We believe a portion of the sequential improvement can be attributed to the work done by the merchandising team in both managing the challenges of the supply chain and embracing the new Just Country customer segment. They have moved swiftly to capitalize on the trend toward being outdoors and dressing more casualty and have augmented the assortment considerably to cater a broader market share. As part of these efforts, we have invested in more inventory of hiking boots, outerwear and casual footwear and apparel, which have started to gain traction. From a marketing perspective, we feel that we had an appropriate balance between our digital advertising and our more traditional marketing programs that emphasize radio, television and direct mail. These efforts helped to greatly minimize the decline in store traffic due to the pandemic and help to drive considerably more traffic to bootbarn.com.

From an operational perspective, our stores team performed extremely well during the holiday shopping season. We were very planful with our approach and were able to successfully hire seasonal associates to help with the increase in sales volume. I must further comment the stores team which faced a decline in customer traffic in the quarter but was able to achieve positive same-store sales growth to a healthy increase in units per transaction. Based on the level of customer service and salesmanship that they provided, we saw transaction size grow by 6% with a nice increase in sales of add-on items including Boot accessories, ball caps and belts. This achievement was further notable given all of the operational and staffing challenges that they faced due to COVID.

Moving to our second initiative, strengthening our omni-channel leadership; during the third quarter e-commerce same-store sales increased 16.3% with our focus on e-commerce profitability driving approximately 80% increase in operating income. From a brand perspective, bootbarn.com sales were up 37% during the quarter with the balance of our e-commerce sales declining largely as a result of the change in promotional posture and pricing on the sheplers.com site to align with a more full-price selling model. From an online and in-store integration perspective, we believe the many omni-channel offerings we had in place for the holiday shopping period helped boost sales both in our stores and online. Our digital and IT teams have been working extremely hard over the last several months to further enhance our omni capabilities giving our customers the ability to buy online and receive their product in our stores.

These initiatives were well received as approximately 20% of bootbarn.com orders were picked up in a store. These orders include those purchased online and picked up in store, in addition to those shipped to the store from our e-commerce fulfillment center. Our omni-channel offerings help drive incremental store traffic and provided convenience to our online customers allowing for same day in store pickup, contactless curbside service and even same day gift-wrapped home delivery. We believe these capabilities were successful in expanding the number of customers that shop across channels. We were encouraged by the effectiveness of our direct-to-consumer supply chain which was able to meet outsized customer demand, while avoiding virtually all anticipated issues with package delivery service.

In summary, the ongoing changes we have made and our focus on increase in e-commerce profitability have not only improved our bottom line, but have helped to narrow the margin differential between the stores and online channels. Now to our third strategic initiative, exclusive brands; during the third quarter exclusive brand penetration grew to 23.3%, an increase of approximately 80 basis points compared to the prior year period. We are extremely pleased with the quality of our exclusive brands and our customers' receptivity to them. The continued acceptance of our brands helped position four of our exclusive brands in the top 10 selling brands in the store during the quarter. We were particularly pleased with the performance of both Idyllwind and Hawx as both brands have penetrated our top 10 brand list despite being only a few years old.

While the growth and penetration of exclusive brands decelerated during the third quarter as a result of constraints in our supply chain, we expect to finish the current fiscal year with exclusive brand penetration growth of approximately 200 basis points when compared to the prior year. Finally, our fourth initiative, expanding our store base; year-to-date we have opened seven stores and closed one store, bringing our total count to 265 stores across 36 states and we are targeting a total of 15 new store openings by the end of our fiscal year. Even with the difficult backdrop of COVID-19 the new stores we have opened in new markets, particularly in the Northeast are outperforming our expectations, and are expected to pay back within our targeted three-year period.

When you couple the performance we're seeing in our new markets with less than expected store cannibalization in our more mature markets, we are further convinced that we can deliver 10% growth in units and double our store count going forward. We are encouraged by the current store pipeline and feel that we are well-positioned as we approach fiscal 2022. I'd like to now provide an update on current business; our fourth quarter is off to a very strong start with same-store sales growth of 17% in fiscal January. This marked our sixth consecutive month of sequential improvement. The Stores business continues to exhibit solid strength with January comps up 20%. From an e-commerce perspective, we continue to focus on driving growth and profitability, strengthened bootbarn.com sales has continued with growth in line with our third quarter. Sheplers.com demand continues to be under pressure with declining year-over-year sales as we cycle a very promotional January in the prior year period.

As a reminder, the sheplers.com business has been repositioned as a much less promotional business, which as expected, has put pressure on sales. That said, the rebranding Sheplers has resulted in a much more profitable site and we believe provides a solid foundation for the long-term health of that business. On a combined basis, we continue to see very strong growth in EBIT dollar contribution for our e-commerce channel in the first fiscal month of our fourth quarter. Notably, the sales growth in January has been broad-based with all major merchandise categories growing on a comp basis. Additionally, we have seen each of our three geographical regions grow double-digits in the month. That said, while we are certainly excited about the current sales trend and we believe the underlying business continues to be strong we do attribute a portion of the acceleration in sales to external factors, including the receipt of stimulus payments at the start of the 2021 calendar year.

I'd like to now turn the call over to Greg Hackman.

Greg Hackman -- Executive Vice President, Chief Operating Officer and Chief Financial Officer

Thank you, Jim. Good afternoon, everyone. In the third quarter net sales increased 6.5% to $302 million. The increase in net sales was primarily a result of the 4.6% increase in same-store sales and the sales contribution from new stores opened over the past 12 months. Gross profit increased 10% to $106.8 million or 35.3% of sales compared to gross profit of $97 million or 34.2% of sales in the prior-year period. The 120 basis point increase in gross profit rate resulted from a 150 basis point increase in merchandise margin rate, partially offset by 30 basis points of deleverage in buying and occupancy costs. Merchandise margin increased 150 basis points primarily as a result of better full-price selling and reduced promotions. Operating expense for the quarter was $65.2 million or 21.6% of sales compared to $62.1 million or 21.9% of sales in the prior year period.

Operating expense increased primarily as a result of additional cost to support higher sales and expenses from new stores. Operating expenses as a percent of net sales decreased by 30 basis points, primarily as a result of expense leverage on higher sales. Income from operations was $41.6 million or 13.8% of sales in the quarter compared to $35 million or 12.3% of sales in the prior-year period. Income tax expense was $9.9 million in the quarter compared to $7 million in the prior-year period, resulting in an effective income tax rate of 25.1% in the third quarter. Net income was $29.6 million or $1 per diluted share compared to net income of $24.8 million or $0.85 per diluted share in the prior year period. Turning to the balance sheet, inventory decreased approximately 9% on a comp store basis compared to last year.

On a consolidated basis, inventory decreased 10.7% to $246 million. This decrease was primarily driven by the reduction in comp store inventory and a decrease in inventory at our Fontana distribution center. As of December 26, 2020, we had a total of $111.5 million of debt outstanding related to our term loan. During the third quarter, we reduced our line of credit borrowings by approximately $130 million resulting in zero drawn on our $165 million line of credit. We had $76 million in cash on hand at the end of the quarter and our net debt leverage ratio at the end of the quarter was 0.5. Given the continued lack of visibility into the business as a result of COVID-19, the company is not providing fourth quarter and full year fiscal '21 guidance at this time.

Now, I'd like to turn the call back to Jim for some closing remarks.

James G. Conroy -- President and Chief Executive Officer

Thank you, Greg. We are extremely pleased with the results of our third quarter and the underlying improvement we are seeing across the business. We believe we are well-positioned for a solid finish to our fiscal year and are looking forward to continuing to drive same-store sales growth with the return of a more normalized macro environment. I would like to express my personal appreciation to the more than 5,000 associates across the country who continued to show great dedication to both our Boot Barn family and our customers and who have delivered an exceptional holiday quarter through a challenging environment.

Now, I would like to open up the call to take your questions. Shamalia?

Questions and Answers:

Operator

Thank you. [Operator Instructions] And our first question is from Matthew Boss with J.P. Morgan. Please proceed with your questions.

Matthew R. Boss -- J.P. Morgan Chase & Co. -- Analyst

Thanks and congrats on the business acceleration guys.

James G. Conroy -- President and Chief Executive Officer

Thanks Matt.

Matthew R. Boss -- J.P. Morgan Chase & Co. -- Analyst

Jim, on the sequential improvement across your three regions, any key lead indicators that you're focused on in the oil and gas markets? And how best to think about competitive market share opportunity in your more mature markets given I know the backdrop is very fragmented?

James G. Conroy -- President and Chief Executive Officer

Sure. Each of the three regions have improved sequentially quite nicely between Q2 and Q3 and then when we got into January it's just been fantastic business across the country. The West has always been the lead since COVID began a year ago or so. The South, which does have Texas in it and has some connectivity to the oil markets has started to get sequentially better in the third quarter and turned positive as we got into January. We're not oil experts by any stretch, but it does seem that there seems to be a bit of a reemergence of that industry. The price of a barrel of oil is up about $10 versus a few months ago, employment and rig count seems to be improving and we can see it in our business. That part of the business is getting a little bit better. And again, January which might be obscured a bit by stimulus checks, essentially everything was strong.

In terms of share, we continue to believe that our number one competitor in each of our markets where we have stores is an operator that has one or two stores, it's a mom-and-pop and just simply can't put together the assortment that we have, the level of inventory that we have, they can't compete against a national brand like we have and I think we just continue to take share from the several hundred or more than 1,000 single-store operators around the country. So while we know we have other competitors that are maybe secondary to our market or big competitors online, etc, and we do want to combat those guys and go up against the best, frankly for us to be successful going forward, you just need to continue to execute on our current plan and take share from the market.

Matthew R. Boss -- J.P. Morgan Chase & Co. -- Analyst

Great. And then maybe just a follow-up more from a bottom line perspective. On your comments around continued margin strength in January, could you just elaborate on drivers of pricing power that you see from a merchandise margin perspective and any impediments to driving similar or greater merchandise margin expansion in the fourth quarter? And then Greg is three to four comps the best way to think about the leverage point for buying and occupancy within that gross margin?

James G. Conroy -- President and Chief Executive Officer

On the first part on merchandise margin, if you think about the complexion of the business. We served the third quarter; our inventory was down about 10%, the business starting to accelerate. As Greg mentioned, we ended the quarter with our inventory down about 9% on a comp store basis and our January business was just extremely strong. So there is -- one of the things, one of the very few things that arose merchandise margin is when we try to clear through clearance merchandise and by virtue of the fact that our inventory is lean and our sales have accelerated, we continued, we believe, to see margin expansion for the foreseeable future.

Going forward, if you look multiple quarters going forward, we continue to look at areas within e-commerce to get more margin expansion. For example, can we improve the exclusive brand penetration online? We continue to look for ways to reduce supply chain costs whether that be more efficient in our performance center or try to figure out ways to lower shipping costs, etc. So there's still opportunities for us to find margin improvements either merchandise margin or operating margin in both channels, stores and online. I wouldn't necessarily encourage you to model 150 basis points for the next several quarters, but it's not like we're out of ideas to find more margin rate. And then on the leverage question?

Greg Hackman -- Executive Vice President, Chief Operating Officer and Chief Financial Officer

And Matt, in terms of the leverage, we've typically guided -- this year we're not guiding of course but we've typically guided roughly a 3.5% same-store sales increase to get leverage out of buying and occupancy. In this specific quarter we have 20 basis points roughly of deleverage and occupancy and 10 basis points in the buying line. The buying line was driven by higher bonus cost. We had a really phenomenal quarter and we had to accrue more bonus expense both at the buyer line, pardon me, and also within operating expense. So you've got 30 basis points of leverage in operating expense and that's also had a headwind from incremental bonus expense.

The 20 basis points of occupancy cost deleverage, I would attribute a portion of that to -- while we had strong comp growth of 4.6%, the total sales grew about 6.5% and that 6.5% would have been larger if for example the National Finals of Rodeo Event would have been held in Las Vegas like it historically is and it would have been attended by lots of people and we would have had higher boots sales, for example. So NFR went on, but it went on in Fort Worth with reduced capacities. We had a smaller booth and so that negatively impacted the top line a bit, so we'll hopefully give guidance next year and be able to update anything as it relates to leverage points. But that's just a little bit more color around the deleverage.

Matthew R. Boss -- J.P. Morgan Chase & Co. -- Analyst

Perfect. Congrats again and best of luck.

Greg Hackman -- Executive Vice President, Chief Operating Officer and Chief Financial Officer

Thanks Matt.

James G. Conroy -- President and Chief Executive Officer

Thanks Matt.

Operator

And our next question is for Max Rakhlenko with Cowen and Company. Please proceed with your question.

Max Rakhlenko -- Cowen and Company, LLC -- Analyst

Great, thanks a lot and congratulations on the nice quarter. So first, in your bootbarn.com business how much of the growth would you attribute to new shoppers? And in your stores, despite the traffic decline, are you seeing new shopper growth there as well? And can you just touch on the strategies to get these new shoppers to become more loyal and productive shoppers for you over the longer term?

James G. Conroy -- President and Chief Executive Officer

On the bootbarn.com, it's hard to give a specific number. We believe it's about a third of the growth coming from new customers online. From a stores perspective, while transactions on a comp store basis were negative in the third quarter, we continue to see them improving over the last several months, right? We feel pretty confident that we can anchor that right back to what's going on with COVID. And then while we didn't say this specifically, when we got into January clearly transactions on a comp store basis, our proxy for traffic was up and frankly up significantly as a component of the plus 20% comp in the store.

On the last piece, we have a very methodical, deliberate, spelled out process when someone enters our customer base, our B Rewarded loyalty program based on how they've entered, either they've entered in store or online, based on the product that they purchased, whether that's local, Western or just Country or Wonderwest, they get a series of emails that are specific for that person or maybe that small segment over the course of a few weeks that really gets them introduced to Boot Barn, not only highlighting the area that they were first interested in, but also giving them a taste of the rest of the product and the assortment that we carry.

We believe this is really working for us, right? More than half, in fact, the vast majority of our sales, particularly in-store are connected to a loyalty number, B Rewarded member. And that's part of the reason why we feel that the customer continues to be very well, as they accumulate points, those points then get converted into what amounts to a modest merchandise discount and then they come back and make another purchase and accumulate more points. So that's the program that's been in place for several years now, but the uptake by the customer is one of the things that differentiates us from a lot of other retailers that have attempted the same thing.

Max Rakhlenko -- Cowen and Company, LLC -- Analyst

Got it. That's very helpful. And then on the EBIT margin pre-COVID I believe 10% was the medium-term target that you discussed. Where we stand today with e-comm being much more profitable than before, how are you thinking about with the profitability profile of the company could look like over the next few years? Thank you.

Greg Hackman -- Executive Vice President, Chief Operating Officer and Chief Financial Officer

Good question, Max. You're right. We had signaled the 10% as kind of the near-term target and longer term, I think we had pointed out companies like [Indecipherable] that sell both branded and exclusive brands and I believe their profitability profile is 13% or 14%, I believe. And we think that that could be a reasonable proxy for what we might be able to achieve.

Max Rakhlenko -- Cowen and Company, LLC -- Analyst

Great. Best regards.

Greg Hackman -- Executive Vice President, Chief Operating Officer and Chief Financial Officer

Thank you.

James G. Conroy -- President and Chief Executive Officer

Thank you.

Operator

And our next question is from Jonathan Komp with Baird. Please proceed with your question.

Jonathan R. Komp -- Robert W. Baird & Co. Incorporated -- Analyst

Yeah. Great, thank you. Maybe a bit of a follow-up, maybe you touched on this a little bit already, but if I look back really fiscal 2016 and 2017 when comps were challenged -- coming out of that period, you had two years of very outsized earnings growth and I'm wondering just directionally as you look forward today some of the puts and takes of why that may or may not be kind of a good framework to judge what you might be able to produce going forward, just kind of any high-level thoughts?

James G. Conroy -- President and Chief Executive Officer

Well, I think we are positioned well to grow on top of the COVID quarters, of course, right? Unfortunately in Q1 last year with top line sales averting so much, stores being closed, etc, we'll get what will look like very outsized earnings growth. We do always want to anchor people back to our long-term algorithm, which is call it for 20% EPS growth. Arithmetically, we'll do more than that presumably in our next fiscal year just considering we're cycling in the first and second quarter, less strength in the earnings line. I think one of the things we're really encouraged by is the business seems to be recovering and January seems to be very strong. And many of the things that we thought could provide future growth haven't kicked in yet. So oil while improving, it's still a drain -- the oil markets are still a bit of a drain on our comp. COVID is still impacting country music concerts and rodeos.

While we feel good about our inventory we'd love to get a little bit more product through the supply chain. We haven't yet cycled the sheplers.com chain. So that's been a drain on top line. So we think there is plenty of places where we can get ongoing top line growth, which of course we expect to drop that down to bottom line. I would say the last thing is, coming out of this, and this is not necessarily the way we want to gain share, if I'm honest but we believe we've been able to weather the pandemic better if not much better than many of our competitors that have one or two stores. So we believe there has been and will continue to be either some shake out for some ongoing weakness from those players and that gives us the opportunity to -- think we just continue the trend that have been going on for several years, which is us taking more share. So perhaps a long-winded answer to your question, but that's what we're thinking about it.

Jonathan R. Komp -- Robert W. Baird & Co. Incorporated -- Analyst

And maybe just a follow-up. Would you be content really executing the plan [Indecipherable] 10% plus unit growth? And I assume kind of deleveraging the balance sheet going forward or would there be any other alternative investment either operational, internally or M&A that you would look at? Just how are you thinking about the strategies going forward?

James G. Conroy -- President and Chief Executive Officer

I think for the foreseeable future our strategy is going to be relentless focus on execution, continue to do what we're doing, open up stores that payback in less than three years, maybe there is some upside to the 10%, continue to develop great exclusive brands, we march forward with our omni-channel initiatives, work with our segmentation and with marketing and merchandising to bring the Boot Barn experience to life and drive same-store sales. Perhaps over the next couple of years there'll be some acquisition that comes our way that we'll take a look at, but I would say for the foreseeable future we're just going to put head down and continue to execute like we have been and we really don't need to do in an anything outsized way, anything more than we've been able to do for the -- if you can ex out COVID for the last few years for us to continue to drive EPS growth. So it's perhaps a boring and not super sexy store that -- it's also one that we believe has a fairly strong roadmap and low beta.

Jonathan R. Komp -- Robert W. Baird & Co. Incorporated -- Analyst

Yeah, no, that's great. Appreciate you sharing, thanks guys.

James G. Conroy -- President and Chief Executive Officer

Thanks Jon.

Greg Hackman -- Executive Vice President, Chief Operating Officer and Chief Financial Officer

Thanks Jon.

Operator

And our next question is from Tom Nikic with Wells Fargo. Please proceed with your question.

Tom Nikic -- Wells Fargo Securities, LLC -- Analyst

Hey, good afternoon guys. Thanks for taking my question. So I wanted to ask about the private brand business. So I think you said that, for the full year it should grow something like 200 basis points penetration, which will get you up into the kind of the mid 20s, I guess. How should we think about that on a longer-term basis? Are we still thinking 200 basis points of penetration a year? Like what is their feeling that you see for that business? Any color around the private brands would be helpful. Thanks.

James G. Conroy -- President and Chief Executive Officer

Sure. Yes, you're right in recounting the numbers. When we had our call in May of 2020, we actually had expected exclusive brands to be even more challenged and purely based on the fact that out of abundance of course of caution, we really held back the supply chain, we deferred orders or canceled orders and then when it started to appear that COVID while -- very detrimental to the environment and to the economy and to the country that our business started to build back. We turned that supply chain back on. So while we thought we'd see zero growth, we got about two points of penetration growth, which was better than we expected. As we lay out our fiscal 2022 guidance, which I don't intend to do right now, I think it's safe to say we'll expect to see in keeping with past years 2 or 2.5 points of penetration going forward with have plenty of opportunities for us to continue to grow, that might get us to 25%, 26% being mindful of the fact that we continue to want to have a variety of brands for our customers. We have some extremely strong vendor partners that have helped us grow our business and continue to help us grow our business. So the ceiling -- we'll hit the ceiling at some point. I don't think we're there yet, but I don't expect Groupon to have 50%, 60% exclusive brands in the foreseeable future.

Tom Nikic -- Wells Fargo Securities, LLC -- Analyst

That's helpful. Thanks very much and best of luck for the year -- rest of the fiscal year.

James G. Conroy -- President and Chief Executive Officer

Thanks Tom.

Operator

And our next question is from Peter Keith with Piper Sandler. Please proceed with your question.

Bobby Friedner -- Piper Sandler & Co. -- Analyst

Hi everyone. It's Bobby Friedner on for Peter Keith. Thanks for taking my question. Just looking at January trends, why do you think stimulus impact has led to reversal in channel trends with retail store decelerating and e-comm decelerating? And are there any indications that retail store comps will remain positive once stimulus benefits wear out? Thanks.

James G. Conroy -- President and Chief Executive Officer

So it's an excellent question. A portion of it for sure is the sheplers.com business last January was even more highly promotional and we're cycling that. So the sheplers.com business is more of a drag on our e-commerce business in January than it was in the third quarter. Bootbarn.com is kind of in line with the third quarter -- in the third quarter, I think we called out a 37% growth. So we're in line with that in January. I don't have an easy answer to why we think it's more being flushed through the stores. Well, in April when the stimulus last hit, a lot of our stores were closed people weren't comfortable being shopping and being outside the whole COVID thing was new, and so I think e-com got the benefit of that because people were at home, they have this money to spend and they wanted to spend it, this time around, they are more comfortable in a store environment, and so they are going to where they prefer to shop I think.

I mean, the last part of your question is, it's very hard to strip-out the impact of stimulus payments. We are -- yes, we have to use our intuition to try to understand our estimate what the underlying growth is. But if you look at the five months leading up to January, we've seen a steady ramp of sequential improvement, the tail end of December prior to stimulus was very solid and then we've got into January, the business just got extremely strong in terms of its duration. I think stimulus tends to be very relatively short-lived, to be honest, six weeks maybe.

So I would say over the next couple or three weeks, we'll start to see a slowdown or if not a slowdown, less outsized growth, I guess is how I would characterize it. And then just as a reminder, in our fiscal fourth quarter, when we get to the tail end of March, we'll start to cycle very soft numbers because that's when COVID really start to impact our top line kind of mid-March last year.

Bobby Friedner -- Piper Sandler & Co. -- Analyst

All right. It's all very helpful. Just maybe separately on advertising and marketing, how much of benefit were lower ad expenses in calendar 2020 and do you anticipate this becoming more of a headwind this year as the ad market gets more competitive and the consumer appears to be strengthening.

James G. Conroy -- President and Chief Executive Officer

I think that's a small piece of the pie for us, right. There is so much of our marketing is -- the dynamic you're speaking to is most prevalent on television and not a very small part of our marketing. So all of our direct mail would be roughly the same cost as last year and then, yes, we're still seeing catalogs to homes. Radio, I don't think we'll have a big change in CPM, pay-per-click we've seen, we've seen ups and downs. I'm not sure we had a particularly in-expensive cost per click in the third quarter. Anyway, so I just don't think that's going to be a big impact as it relates to Boot Barn, I'd be shocked if it's a headwind that we've ever be big enough to or meaningful enough to have to call out to the public markets.

Bobby Friedner -- Piper Sandler & Co. -- Analyst

All right. Great. Thanks a lot guys.

James G. Conroy -- President and Chief Executive Officer

Thanks, Bobby.

Operator

And our next question is from Janine Stichter with Jefferies. Please proceed with your question.

Janine Stichter -- Jefferies LLC -- Analyst

Hi, everyone, thanks for the [Indecipherable]. Want to ask a little bit about units per transaction [Indecipherable]. Is there anything particularly going on there that you could elaborate on that, merchandising is the change in product trend a bit. The change in how you're compensating your store associates and any additional color you could provide there would be helpful.

James G. Conroy -- President and Chief Executive Officer

Sure. It's a very good question. And once again, if any of them are listening kudos to the field team for driving basket size through more units per transaction. One of the things that happened ironically is in COVID environment, we had to provide stores with sufficient labor to take care of customers in a safe way. So ironically, we wind up perhaps with more hours than we otherwise would have scheduled, which could have given the stores, the opportunity to take better care of customers etc. I think we -- and Mike Love, our head of stores, really put a focus on building the basket calling our growth in ADT and we've got reporting on that, but I think it also just becomes part of the mantra. I think if I'm really honest what makes it even more compelling is one of the things that tend to drive more units per transaction is -- and they are not -- that often, but we do run clearance sales sort of buy one get one off or get one free or buy one get one 50% off. And given the fact that we didn't have that much clearance in December or even for the quarter, they were able to go UPT despite not having that tailwind.

So I think I could really attribute it to the stores team mostly and certainly the merchandising team, we have -- a great buyer of belts and as we're selling more denim we're selling more belts. As the boots business started to improve, we started to sell more boot care. But at the end of the day, it's the sales associates in the field that were really encouraging customers to build the basket and increase our gift-giving etc.

Janine Stichter -- Jefferies LLC -- Analyst

And then you mentioned on the labor putting more hours in the store that you might have otherwise just for COVID precautions. As we think about maybe some of those -- the needs of some of those precautions wearing off in the back half of the year, do you hindsight discuss may be to keep those hours on or how do you think about flexing store labor and as you no longer need the COVID precautions?

Greg Hackman -- Executive Vice President, Chief Operating Officer and Chief Financial Officer

Janine, it's a great point and it's probably I'm not showing math between Me and Janine later. I don't think we'll over staff the stores once some of these COVID requirements unwind. It is great and the stores team did a fantastic job of again building the basket as Jim described. We do think the way we manage the store labor historically has worked extraordinarily well for us. I think when we held the Q2 call, we said that we are going to invest in marketing and labor. So that would be ready if the customer came and that paid off. But I'm not sure outside of the holiday period that we need to over-staff the stores like we did in holiday and it's just a bit more difficult to manage the traffic.

Janine Stichter -- Jefferies LLC -- Analyst

Okay. Thanks for all the color and best of luck.

James G. Conroy -- President and Chief Executive Officer

Thank you.

Greg Hackman -- Executive Vice President, Chief Operating Officer and Chief Financial Officer

Thanks, Janine.

Operator

And our next question is from Sam Poser with Williams Trading. Please proceed with your question.

Sam Poser -- Williams Trading LLC -- Analyst

Thank you so much for taking my question. First of all, I'd like to know just what -- given how strong the e-commerce business has become and especially at -- I mean the Boot Barn e-commerce business has become, what have you learned from that business, that's going to help and form how you assort the stores and better engage your customers at the store level.

James G. Conroy -- President and Chief Executive Officer

Well, we are constantly feeding learnings between the two channels. The bootbarn.com has an assortment that's much broader than what's in the stores. So when we start to see something emerging on the online business we will funnel that in and start to bring that part of the assortment into the stores. So it is a good way to get testing on many more styles, even more brands, etc. So we'll see, for example, as we start new businesses off, like hiking boots, we'll start to see what selling online, I mean use that as a bellwether to determine what to bring into the stores, where we should invest in key items and really bring the best of what we see online to the stores channel. I must tell you that we also see things going the opposite direction. We see things that emerge in the stores that we can make a bigger deal out of and tell a story with online and we'll go the opposite way as well. Merchandising teams are very well integrated across channels.

Greg Hackman -- Executive Vice President, Chief Operating Officer and Chief Financial Officer

And more speaking toward like being able to identify certain styles that might be an existing style that during the crisis were more people were shopping online where you said oh in this particular location or group of stores, the customer is telling us they want this, but we don't have that in the stores and it's more on the basics like to be able to not to fund the new products, new ideas, that's one thing. But more to make sort of your core business more efficient through specifically the learnings this year where there seem to be a shift more toward online given that high double -- very strong double-digit results, especially in the third quarter in the e-commerce, in the bootbarn.com.

James G. Conroy -- President and Chief Executive Officer

Now there has been places -- I'll give you a more mini example that's more basic merchandise related. We saw lace-up work boots start to sell in markets that were pull-on work boot markets and that's a place where we started to build out the assortment in the store and started to see some real growth. I think it's a very good question. We absolutely use the e-commerce channel on a market by market basis to help inform and to identify breaking trends.

Sam Poser -- Williams Trading LLC -- Analyst

And then -- well, thank you. And then lastly, you talked about in your press release and in your conversation about sales by month of this past quarter and then you also talked about January. Can you tell us last year what the comp was brick and mortar in digital by month for January, February and March?

James G. Conroy -- President and Chief Executive Officer

We can. Let me give you more of a conceptual sense and really -- we want to be a little bit hedged here, because we don't want people modeling plus one year or a two-year stack or whatever. But our January business of the three months last year in Q4, our January business was the strongest. February was slightly less than January and then March when COVID fell off the table. We also had a shift in rodeo etc, but the upshot of it all in January was the strongest month last year fourth quarter and I think it was roughly at plus 5%. But again, we don't -- I think you have to take that with a grain of salt, you have to kind of think about the stimulus checks and it would be much too aggressive for us to say. Therefore, we expect a 25% two-year stack comp in February with if not what we're expecting March -- once again March gets more complicated because the beginning of March is very strong and the second part of March fell off the table because stores were closed and COVID hit etc.

Sam Poser -- Williams Trading LLC -- Analyst

Thank you. Thank you very much. Continue success.

James G. Conroy -- President and Chief Executive Officer

Thanks, Sam.

Operator

And our next question is from Paul Lejuez with Citi. Please proceed with your question.

Paul Lejuez -- Citigroup Inc. -- Analyst

Hey, guys. Two questions. One, on the competitive landscape, I'm curious what you're seeing from a promotional perspective. Are you able to be less promotional as you have been, because your competitors have also been less promotional, have you been able to get less promotional despite the competition being promotional, curious if there's any difference by region there and also just curious, big picture, how you're thinking about where to grow your store base now more confident in terms of your ability to grow that 10% per year and curious if it's more of a push or pull kind of system in CNG where you want to be and then you pursue that region as opposed to landlords reaching out to you and then assessing if it makes sense and just how that might have changed as a result of the pandemic? Thanks.

James G. Conroy -- President and Chief Executive Officer

Sure. On the first piece, I don't think the promotional posture within our industry has changed all that much and candidly regardless of what happens within the industry, we like to put a great assortment out there at a very fair price with excellent service, night stores, had a great in-store experience and just choose not to run significant promotions discount, sales etc, regardless of what our competitors are doing. Bear in mind that in most of our markets, our biggest competitor has one store. We do have one regional chain. They're based in Houston. It's a very formidable competitor. We actually have a lot of respect for what they do, and they tend not to be very promotional. So that's -- I think it's just good for the industry.

On the store expansion piece between push and pull, I would say it's a push. What we look at the map of where our current stores are, how our field team is organized, where we see competitors either places, where there may not be enough stores or places, where there might be competitors that we can take on and we then look for real estate. Given what's going on in the world of retail, finding a 10,000 or 11,000 or 12,000 square foot freestanding retail store has proven to be relatively straightforward. But we have a strategy, as to where we want to go and what the roadmap looks like, and, of course, that twist and turns a little bit. But fundamentally, we want to follow the path that we've set out.

Paul Lejuez -- Citigroup Inc. -- Analyst

Got it. Thank you, guys. Good luck.

James G. Conroy -- President and Chief Executive Officer

Thank you.

Operator

And our next question is from Rick Nelson with Stephens Inc. Please proceed with your question.

Richard Nelson -- Stephens Inc -- Analyst

Thanks. Good afternoon. Jim you talk about narrowing the gap between online sales and margin and the stores. Can you discuss where we are with that gap and is there anything that would probably [Technical Issues] EBIDTA margins from matching those with the stores?

Greg Hackman -- Executive Vice President, Chief Operating Officer and Chief Financial Officer

Rick, it's Greg, and it's a great question. We've made really good progress over probably the last two years, and we're probably in the fifth or may be the sixth inning in terms of continued opportunity. The places that are just a little bit harder to get at that caused that disconnect a bit is, first, the exclusive brand penetration is less online when a customer goes into our store, they can touch and feel the exclusive brands and they tend to select our merchandise when given an opportunity to look at the quality and the make of the product. So it's less online, and that's a harder story to tell online than it is in the store, number one.

Number two, if you just think about the components of the P&L, outbound shipping or e-com shipping is expensive and most of all of our boots ship for free. And if you spend more than $75, I think you get free shipping. So that's expensive, of course, we've done some things to try to reduce that cost, whether it's using ESPS as an alternative to UPS, whether it's encouraging the customers to buy online and pick it up from the store or perhaps even shipping purchases from our stores versus Wichita have all helped that freight and it continue to help that outbound freight costs. But those are kind of a two structural things that are just a little bit more difficult to overcome.

Richard Nelson -- Stephens Inc -- Analyst

Okay. Got you. Thanks for that Greg. And could push into Just Country, I assume it's more apparel driven than footwear driven, if you could discuss that -- if you could size up the opportunity, where apparel margins sales versus footwear margins?

James G. Conroy -- President and Chief Executive Officer

Sure. Well, continuing with the second part of your question, our footwear margins tend to outpace our apparel margins across virtually the whole store men's or ladies, work or western. With that said, the Just Country initiative is -- does absolutely include footwear. So while we might be selling some more casual apparel more outdoor Softshell jackets etc. We're also augmenting the assortment in building inventories in more and more stores for hiking boots and casual footwear etc, drivers markets etc with marketing. So I think the composition and I doubt, we'll ever try to present it separately, but the composition of the Just Country part of the business between footwear and apparel will likely resemble the whole store kind of Q1 in favor of footwear.

Richard Nelson -- Stephens Inc -- Analyst

Thanks for that, and good luck, guys.

James G. Conroy -- President and Chief Executive Officer

Thanks very much, Rick.

Operator

And our next question is from Mitch Kummetz with Pivotal Research. Please proceed with your question.

Mitch Kummetz -- Pivotal Research Group -- Analyst

Yeah. Thanks for taking my questions. I've got a couple. So first question, I was hoping, you guys could provide a little more color on the trajectory of your South region. So it's been your worst performing region, but you also mentioned, it was the one that improved the most sequentially. So like if we think of the delta between the South and the overall business, I mean, has the delta gone from like minus 800 basis points to like minus 5 to now you're like down 100 or can you just give us a little color on kind of how that's improved on a relative basis.

James G. Conroy -- President and Chief Executive Officer

Mitch, I'm afraid. I'm looking at Jim. I'm afraid we can't help you with that. We'll have anything out there that framed up that delta forward. So at this point, I don't think we're going to redo that color.

Mitch Kummetz -- Pivotal Research Group -- Analyst

Okay. Let me ask about the South a different way, and then I do have another question. When you think about that business on a go-forward basis, given the improvement that you're seeing like when is the easiest comp on the sell on a relative basis. I mean does that happen by like the first quarter of '22 or I'm just trying to understand how much easier those comparisons get for that region.

James G. Conroy -- President and Chief Executive Officer

Yeah. So COVID, there is an equal opportunity, the pressure in terms of sales and impacted all of our regions in week 50, which is the middle week of March, if you will and everybody was down significantly in comp. So the first full quarter of really tough business will be the Q1 quarter that you called out and COVID negatively impacted West Texas first from a COVID concern, but then obviously, the follow on was global economy shut down and we saw reduction in WTI and rigs drying up, if you will or pulled offline. So that's what caused the South to be disproportionately impacted.

So long story short, you've nailed it in terms of it will be Q1 where we'll see out sized negative business in the South compared to some improvement in the North and the West. If you recall, April and May were difficult months for us and then June kind of the Western and the North improved a bit and the South was still under pressure.

Mitch Kummetz -- Pivotal Research Group -- Analyst

Yeah. Okay. That's very helpful. And then my last question, I know the absence of rodeos and festivals and concerts has been a negative for your business. I'm just wondering what visibility do you have in terms of some of those things coming back online. I know, Houston has been pushed back from March to May, and hopefully it happens in May. And I guess, maybe start with Houston, so for the fourth quarter, you're going to have zero days of the Houston rodeo this year versus eight last year, but then, in May, hopefully, you'll have 20 versus 0. I mean could you maybe just address how you think about, I believe that's the most important rodeo for you guys, I'm just curious if that's material to the fourth quarter. And then what visibility, if any do you have on some of these things coming back online?

James G. Conroy -- President and Chief Executive Officer

Great question, Mitch. I don't think the lack of Houston rodeo in March this year is going to be that impactful to our business. Of course, we'd love to have the rodeo held. But the reality is, as Jim's described, we're going to have phenomenal numbers in March because there is some sales happening even if it's not for Houston rodeo, there will still be normal sales as opposed to COVID impacted sales in March. The one thing we don't know about on Houston rodeo is that they've talked about keeping the [Indecipherable] at the normal timing now. That may have changed or may change, but so there may be some Houston rodeo business in March. But again, it's not going to be meaningful to the quarter in any way and it will be interesting to see what happens in May when they hold the rodeo given vaccine roll out, etc, if we'll have a full-fledged rodeo --

Greg Hackman -- Executive Vice President, Chief Operating Officer and Chief Financial Officer

With the concert or not.

James G. Conroy -- President and Chief Executive Officer

With the concert or not, I mean those are the things that are hard for us to predict. I don't think we've seen anybody announcing a concert tour this year yet. So we'll see.

Mitch Kummetz -- Pivotal Research Group -- Analyst

Is that business typically several million dollars for you guys or?

James G. Conroy -- President and Chief Executive Officer

Well, we've said I think in the past is on the year, it's a low single digit piece of our business.

Mitch Kummetz -- Pivotal Research Group -- Analyst

Got it. Okay.

James G. Conroy -- President and Chief Executive Officer

So call it 2% or 3%. It ebbs and flows in different parts of the year, I think Greg is right though we absolutely want for a variety of reasons we want that business to come back, we want those events to come back online, etc. The noise of it though, I think it's completely subsumed in much bigger noise of COVID and wrapping COVID numbers.

Mitch Kummetz -- Pivotal Research Group -- Analyst

Sure.

James G. Conroy -- President and Chief Executive Officer

So while we may have a little bit of a pressure point margin will help in May cycling the numbers that we're cycling. Yeah, there is a so soft, given what happened in the very beginning of COVID that I think it will be very hard to understand what's going on with the rodeo piece of it.

Mitch Kummetz -- Pivotal Research Group -- Analyst

Sure. All right. Thanks, guys. Good luck.

James G. Conroy -- President and Chief Executive Officer

Thanks, Mitch.

Greg Hackman -- Executive Vice President, Chief Operating Officer and Chief Financial Officer

Thanks, Mitch.

Operator

And our next question is from Jeremy Hamblin from Craig-Hallum. Please proceed with your question.

Jeremy Hamblin -- Craig-Hallum Capital Group -- Analyst

Thanks, and I'll add my congratulations on the business momentum and strong execution. I wanted to revisit something you mentioned Greg the potential for longer-term EBIT margins and the prospects for not just 10% EBIT margins, but something closer to 13% or 14%. Could you give us a sense of that extra 300 basis points to 400 basis points, the drivers or the components of that. Is that coming from product margins? Is it coming from SG&A leverage. I don't know how clearly you've thought about it though in detail of how we get from 10% to 13% to 14%. And just wondering, if you could give us a sense for where those drivers are going to come from?

Greg Hackman -- Executive Vice President, Chief Operating Officer and Chief Financial Officer

Yeah. Good question, Jeremy. I haven't put pencil to paper and map this out over the next number of years, right. But you've touched on the things that would be important expanding -- continuing to expand merchandise margins is something that we want to continue to do, whether it's more exclusive brand penetration or better margins on the exclusive brands, it's the continued philosophy around full price selling, less promotions we talked about the fact that we're in a cleaner inventory position. And so maintaining that is important. Of course, I think getting leverage out of the occupancy line is important, and we'll get some that would -- we believe for sure, an operating expense, as we grow the store base. So it's all of the things kind of that you talked about.

Jeremy Hamblin -- Craig-Hallum Capital Group -- Analyst

Okay. And then a follow-up on that. In terms of thinking about store count and so forth, I think you mentioned this not that long ago. But in terms of thinking about your opportunity, how much do you think it may have expanded given the kind of the current conditions of some of maybe your weaken competitors the mom and pop type stores, is it something where maybe it's not that you're doubling your store base, but tripling your store base. Can you give a sense of magnitude on what you think it's evolved to?

James G. Conroy -- President and Chief Executive Officer

Another good question, Jeremy. We are further emboldened by our success of stores opened in Ohio and Pennsylvania and how strong those opened again kind of in a COVID environment. In addition to that the stores we've opened in California that we would have thought might cannibalize an existing store and really had no impact, gives us confidence that the 500 number we put out there is, I'm going to use the word conservative, we haven't started to update our store kind of potential work. We're going to do that, of course, but it's a little bit toned us probably today to come out and tell you that we think that 500 is really 600 or something like that just given COVID. What we have wondered is our -- our customer in the COVID environment, what we have wondered is our customer does enjoy shopping in our stores. The penetration of e-commerce to total sales is roughly in line with what it was last year in Q3 and that tells us that our customer wants to shop store. So we have a lot of confidence in building more stores. And I guess, I'd say stay tuned in terms of what that opportunity is.

Jeremy Hamblin -- Craig-Hallum Capital Group -- Analyst

Yeah. No doubt interesting and somewhat unique in the trends that you're seeing. Last thing, I wanted to ask again, coming back to some of your -- some of the mom and pop type competition. Have you been approached or are you getting approached with greater frequency now, as we're in 2021 and perhaps their businesses are recovering to some degree, maybe not the same magnitude as yours. But wanted to get a sense for whether or not some of the mom and pops that might be hurting might not have as much of a long term horizon, as Boot Barn. Are they approaching you about potentially doing deals, are you getting increase in inbound calls about potentially acquiring some of these stores. And if so, how do we think about funding on the capital side of the equation, if you have maybe some really good opportunities to consolidate geographies, maybe even geographies that you're not currently in. Any color you can share on that would be helpful? Thanks so much.

James G. Conroy -- President and Chief Executive Officer

Sure. Jeremy, I'd say, there is probably more inbound calls over the last 90 days than they were pre-COVID, but it's not game changing numbers. And I think we've talked about this before. We've acquired a one store company, a couple of years ago, we acquired a two store chain called Drysdales that did the volume of say five Boot Barn stores. But historically we've tried to buy operators, we bought a chain of three stores and four stores and before that we bought 25 store chains and Jim touched on this that there is one regional guy out there, that's pretty big and we respect it a lot. But there's not a lot of folks in between them calendars and a four store chain or three store chain. So I'd say, the numbers are up, but I wouldn't say, they are all of interest to us. We would kind of be interested more in a three or four store chains.

And then, in terms of capital structure, etc, I mean, I think I talked about the fact that our term loan is $112 million. We've got nothing drawn on the ABL and we have $76 million of cash. So I think we've got the wherewithal to probably fund just about any acquisition that we would have interest in our industry.

Jeremy Hamblin -- Craig-Hallum Capital Group -- Analyst

Great. Thanks so much guys. Best of luck.

James G. Conroy -- President and Chief Executive Officer

Of course, thank you.

Operator

And our next question is from Jay Sole with UBS. Please proceed with your question.

Jay Sole -- UBS Securities LLC -- Analyst

Great. Thanks so much. A question, just as everybody is watching the pace of vaccine roll-outs, does it change your view of how you're thinking about buying inventory for the first quarter of next fiscal year or the second quarter?

James G. Conroy -- President and Chief Executive Officer

Not really. Right now, we're chasing product to get back in stock, as quickly as we can. Last year at this time, we were a little heavy narrow by a little way and perhaps, we want to get to that just right position going forward. We want to have a full assortment, the full size runs for boots and denim and cowboy hats, work and western etc. And if vaccines and the COVID environment improves greatly, it will be ready. And if it takes longer, we'll just turn our inventory a little slower. We don't really run the risk of bringing in a whole goods of inventory, having something turn south on us, and then having a bunch of markdowns. So we'll build backup the assortments that we feel are a little light. We'll add to some of the businesses that we're trying to expand, some of those are within the country initiative. And we're certainly looking forward playing, which is much more enjoyable playing offense than playing defense. And I think we'll be very well positioned going into the new fiscal year with some more work to do over the next couple of months to shore up some -- a few select departments that are still probably a little light.

Jay Sole -- UBS Securities LLC -- Analyst

Got it. Okay. That's super helpful. Maybe if I could ask one more. Just a lot of talk over the holiday season about freight cost pressures and port issues, how do you see that impacting the business as we go forward. Do you think the freight cost pressures will recede a little bit or do you see the port issues are back to the business or those get easier, what's your thought?

Greg Hackman -- Executive Vice President, Chief Operating Officer and Chief Financial Officer

Jay, it's Greg. It's certainly something that is impacting us right. There is a bunch of ships out in the water outside of Long Beach and Los Angeles ports. The dock workers are being affected by COVID or infected by COVID and therefore harder for them to work. I think the Governor is trying to get them vaccinated quicker. But there is a strain certainly in getting those ships unloaded and in our inventory that we can sell.

And to your point on freight costs, we're seeing that as well that -- that with a shortage of equipment and again, reduced productivity perhaps of the ports that our freight costs will probably be a pressure point for us over the next, I don't know, three months or six months. But I think it will take a bit of time for this to work its way through.

James G. Conroy -- President and Chief Executive Officer

We were able to offset a lot of the freight issues that other retailers called out during the holiday quarter fortunately, so a lot of people called out UPS surcharges and issues of getting the product delivered and we need some gratitude going through the supply chain and the folks in which they kind of run the direct to consumer fulfillment, but we were able to avoid a big uptick in the freight charges and most of it happen going forward.

Jay Sole -- UBS Securities LLC -- Analyst

Got it. Thank you so much.

James G. Conroy -- President and Chief Executive Officer

Thank you.

Greg Hackman -- Executive Vice President, Chief Operating Officer and Chief Financial Officer

Thank you.

Operator

And we have reached the end of the question-and-answer session. And I'll now turn the call over to Jim Conroy for the closing remarks.

James G. Conroy -- President and Chief Executive Officer

Very good. Well, thank you everyone for joining today's call. We look forward to speaking with you all on our fourth quarter earnings call. Take care.

Operator

[Operator Closing Remarks]

Duration: 77 minutes

Call participants:

Jim Watkins -- Senior Vice President, Finance and Investor Relations

James G. Conroy -- President and Chief Executive Officer

Greg Hackman -- Executive Vice President, Chief Operating Officer and Chief Financial Officer

Matthew R. Boss -- J.P. Morgan Chase & Co. -- Analyst

Max Rakhlenko -- Cowen and Company, LLC -- Analyst

Jonathan R. Komp -- Robert W. Baird & Co. Incorporated -- Analyst

Tom Nikic -- Wells Fargo Securities, LLC -- Analyst

Bobby Friedner -- Piper Sandler & Co. -- Analyst

Janine Stichter -- Jefferies LLC -- Analyst

Sam Poser -- Williams Trading LLC -- Analyst

Paul Lejuez -- Citigroup Inc. -- Analyst

Richard Nelson -- Stephens Inc -- Analyst

Mitch Kummetz -- Pivotal Research Group -- Analyst

Jeremy Hamblin -- Craig-Hallum Capital Group -- Analyst

Jay Sole -- UBS Securities LLC -- Analyst

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