Boot Barn Stock: A Solid Buy-The-Dip Candidate (NYSE:BOOT)

Simply over a yr in the past, I wrote on Boot Barn (NYSE:BOOT), noting that important negativity was already priced into the inventory after its ~55% correction and that any pullbacks under $55.00 would supply shopping for alternatives. Since then, the inventory has massively outperformed its small-cap friends within the Retail Sector (XRT), rallying practically 100% off this purchase zone earlier than peaking in early August at $104.00 per share. This spectacular share worth efficiency will be attributed to the corporate’s spectacular execution in opposition to its long-term targets with distinctive unique model penetration (~$550+ million in FY2023), continued margin enlargement on a trailing-five-year interval and appreciable white house with among the greatest unit economics sector-wide (~1.5-year payback on new shops). On this replace, we’ll have a look at the corporate’s most up-to-date outcomes, how its valuation stacks up after its sharp correction, and whether or not the inventory is providing a margin of security.

Latest Outcomes & FY2024 Outlook

Boot Barn launched its fiscal Q1 2024 ends in August, reporting quarterly income of ~$383.7 million, a 5% improve year-over-year. Whereas this was a sequential decline from the 11% reported in fiscal This autumn 2023, it is necessary to notice that the corporate was up in opposition to some steep comps by lapping fiscal Q1 2023, developing in opposition to 19% development, translating to a two-year common gross sales development price of 12%. As well as, the macro outlook actually hasn’t improved for the typical client even when Boot Barn advantages from having a big chunk of its assortment thought-about to be ‘practical’, with private financial savings charges persevering with to development decrease in the USA, touchdown at 3.9% most lately, down from a peak of 5.2% final yr. Plus, these gross sales figures actually are higher than what we have seen from a number of different retailers, with a two-year stacked comp gross sales development of seven.1% simply beating American Eagle (AEO) and Foot Locker’s (FL) unfavourable two-year stacked comp gross sales development.

Digging into the outcomes a bit of nearer, the corporate famous that its AUR was up within the interval which helped with merchandise margin enlargement, and the corporate has continued to develop quickly as a share of gross sales, up 1600 foundation factors vs. fiscal Q1 2021 ranges to ~38%. And whereas the corporate did see some margin strain attributable to a deleverage in shopping for, occupancy, and DC prices, gross margins nonetheless got here in at a really respectable 37.0%, up practically 1000 foundation factors on a 3-year foundation. Lastly, on improvement, the corporate opened 16 new shops, is monitoring at ~30% of deliberate retailer openings for the yr (16/52), and expects to finish the yr at ~400 shops, giving it one of many highest unit development charges within the Retail Sector.

That stated, whereas the outcomes had been fairly passable and the corporate’s development has been nothing in need of unbelievable, Boot Barn is anticipating to have a choppier yr for gross sales with an anticipated same-store gross sales decline of 4% in FY2024 on the mid-point (beforehand 4.5%), and with whole web gross sales of ~$1.73 billion (up 2% from earlier outlook). Happily, this isn’t going to weigh practically as a lot on earnings as a few of its friends which have needed to be extra promotional over the previous few years, and annual EPS could also be declining vs. its peak in FY2022 ($6.18), however will nonetheless be up ~170% from FY2021 ranges if the corporate can meet its steering midpoint for annual EPS at $5.20. This robust earnings retention will be attributed to continued margin enchancment from unique model penetration (1000 foundation level higher margins vs. third-party manufacturers) and the corporate is forecasting even additional development on this class this yr.

Lengthy-Time period Potential

Shifting over to the corporate’s long-term potential, the corporate believes it has important room to develop given that it is the chief in a $40 billion {industry} and is assured that it might probably develop to as much as 900 shops in the USA (125% development vs. year-end 2024 retailer rely estimates). Notably, in contrast to some corporations which are rising with mediocre unit economics and 4+ yr paybacks, Boot Barn’s speedy development is supported by constantly bettering unit economics, with the corporate rising sq. footage from 10,000 to 12,000 since its IPO mannequin idea, however greater than doubling 1st-year common gross sales to ~$1.7 million and bettering its return on funding to ~75% (1.3-year payback) vs. 32% beforehand. These unit economics are unbelievable, and stack up in opposition to among the greatest manufacturers within the sector, like Aritzia (OTCPK:ATZAF) which lately cited sub-1-year paybacks at its Tampa location, and Wingstop (WING) with lower than two-year paybacks on its shops.

Exterior of those distinctive economics, Boot Barn additionally continues to obtain glowing opinions relating to awards, ranked as America’s Greatest Retailer in 2023 and Greatest Clothes Retailer, with a ~95% rating, coming in forward of different iconic manufacturers like Dior, LEGO, Dooney & Burke, and Von Maur. So, with robust buyer satisfaction scores, industry-leading unit development, and constant constructive same-store gross sales development, there isn’t any cause to consider the corporate cannot obtain its lofty targets. And assuming the corporate can proceed to constantly develop its retailer rely and profit from related or larger unique model penetration, Boot Barn may simply generate $8.00+ in annual EPS long-term. Lastly, it is price noting that the corporate has managed to perform its development with low debt, not leveraging up like others to make main acquisitions or borrowing closely at excessive charges to fund development.

That stated, this can be a market the place small caps are indifferent from fundamentals and most buyers are unwilling to pay up for development as they’ve up to now. And whereas Boot Barn has a powerful funding thesis, I do not assume it is ever been extra necessary up to now decade to make sure an enough margin of security. Let’s check out the valuation under:

Valuation

Based mostly on ~30.5 million shares and a share worth of $79.00, Boot Barn trades at a market cap of ~$2.41 billion and an enterprise worth of ~$2.81 billion. This locations it in an analogous place to friends within the Retail Sector like American Eagle, City Outfitters (URBN), and Nordstrom (JWN) from a capitalization standpoint, however Boot Barn stands out exceptionally properly vs. these friends with it managing to 10x annual EPS since 2017, trouncing the comparatively low development charges of this peer group. Not surprisingly, these larger development charges and phenomenal execution have helped the inventory to command a premium a number of vs. its friends, evidenced by its buying and selling at a mid-double digit ahead P/E ratio vs. a lot of its friends buying and selling at a mean ahead earnings a number of of ~9.0. And as we are able to see under, Boot Barn has traditionally traded at ~17.5x earnings, which might usually counsel that the inventory is undervalued at present ranges (~15.0x ahead earnings vs. ~17.5x traditionally).

That stated, the present atmosphere differs materially from the final decade, and when buyers can acquire a risk-free ~4.7%, I feel it is best to make use of a reduction to historic multiples to worth shares, until charges can be minimize imminently. Provided that this does not seem like the case, I feel a extra conservative a number of for Boot Barn is 14.0x ahead earnings, a 20% low cost to its historic a number of. And whereas the inventory could also be ~25% off its highs, the inventory continues to be buying and selling at ~15.0x FY2024 earnings and ~17.2x ahead free money circulate on an enterprise worth foundation, suggesting not practically sufficient margin of security at present ranges. Therefore, I’d argue {that a} truthful worth for the inventory even when we sit up for FY2025 is $86.00 per share, pointing to solely 10% upside from present ranges.

Though this factors to some upside to its truthful worth estimate, I desire to attend for a major margin of security when shopping for small and mid-cap shares, and relating to sub $5.0 billion capitalization names, I’m in search of a minimal 25% low cost to truthful worth. If we apply this low cost to Boot Barn, this factors to a great purchase zone for the inventory of $65.00 or decrease, suggesting the inventory would want to say no a lot additional to drop into a brand new low-risk purchase zone. Clearly, I might be mistaken right here and I could also be too conservative, with no assure that the inventory drops again to those ranges. Nevertheless, I desire to purchase corporations once they’re hated and buying and selling at a large low cost to truthful worth, and whereas this was the case final October for Boot Barn, I do not see this because the setup right now, which in my opinion makes different names like Pet Valu (PET:CA) which are much less delicate to the macro atmosphere (staples tilt) and much more hated as extra compelling reward/danger setups.

Abstract

Boot Barn is without doubt one of the better-run names within the small-cap Retail Area and the corporate has executed a powerful job of delivering in opposition to its targets over the previous a number of years. That is evidenced by a near-tripling of income development from 2016 to 2023 whereas rising gross margins by over 500 foundation factors within the interval. Nevertheless, whereas the inventory was providing a substantial margin of security final yr because it plummeted ~60% from its highs, that very same setup is not out there right now, with Boot Barn buying and selling at solely a slight low cost to its historic a number of and this historic a number of arguably being wealthy given the rate of interest atmosphere we’re in right now. So, whereas I see BOOT as one of many top-10 names within the Retail Area given its means to over-deliver on guarantees, I would want to see a pullback under $65.00 to get extra within the inventory from a valuation standpoint.