Founded in 1978, Boot Barn (BOOT) is the largest and fastest-growing lifestyle retail chain devoted to western and work-related footwear, apparel and accessories in the U.S., notes Doug Gerlach, editor of Small Cap Informer.
The company offers a wide selection of work and lifestyle brand through 232 stores in 31 states. Stores are located in the west, south, and Midwest U.S., with a heavy concentration in Texas.
Boot Barn also operates several e-commerce channels, selling to customers who live a country lifestyle. Typically, western wear makes up 70% of sales, while work wear comprises 30%. Footwear comprises 53% of the company’s total product sales mix, and 63% of customers are men.
Since 2012, sales have grown annually at an average rate of 23.8%, reaching $677.9 million in in fiscal 2017. EPS have been less consistent but faster-growing, increasing at an annual rate of 30.0% since 2013.
In the second fiscal quarter ended September 29, 2018, Boot Barn saw net sales increase 17.5% to $168.1 million. Same store sales increased 11.3%. EPS was $0.16, compared to $0.04 in the prior-year period, a 300% increase. EPS in the second quarter of fiscal 2019 includes approximately $0.04 per share of tax benefit related to stock option exercises.
The company added 3 stores in the quarter through new openings and acquisitions. In September 2018, the company successfully launched a new exclusive brand, “Idyllwind, Fueled by Miranda Lambert.”
Management sees work wear and western wear as making up a $20 billion market opportunity, and one that is highly-fragmented and less fashion-driven than traditional apparel. Work wear purchases are often nondiscretionary, as well.
Country music, western events, ranching, horse ownership, and agriculture are all driving western wear growth, while blue collar employment trends drive work wear growth.
Boot Barn could reach 300 stores before it would have to worry about locations cannibalizing each other. The company is opportunistic and purchases independently-owned stores when possible, then rebranding them as Boot Barn operations.
For the fiscal year ending March 30, 2019, Boot Barn provided guidance for a total of 23 new stores, same store sales growth of 6.5% to 8.0%, and EPS of $1.16 to $1.24. We project sales and earnings growth at 14% annually through fiscal 2022.
Wall Street analysts are looking for 16%-25% annual EPS growth over the next five years, so our projections could be conservative. Retail apparel is a cyclical industry, so a recession or severe economic slowdown in the U.S. would likely take a temporary toll on sales and profits.
The recent turndown in the stock price has put Boot Barn solidly in buy territory. With a selected high P/E of 20 and five-year projected EPS of $2.64, BOOT could reach $53.
On the downside, a retreat to a low P/E of 8 multiplied by trailing twelve-month EPS of $1.37 would deliver a low price of $11. From the current price of $19.18, the upside-to-downside ratio is 4.1:1, above our 3:1 minimum, and the projected annual total return is 22.4%.
