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Boot Barn the nation’s leading pure-play western and work-related footwear

Douglas Gerlach, Editor-in-Chief, Investor Advisory Service, anticipates Boot Barn Holdings will be able to grow revenue at an average rate of 12% over the next several years via a combination of new store growth and continued positive same-store sales performance. He also anticipates EPS growth averaging 16%.

Boot Barn Holdings, Inc. (NYSE: BOOT) is the country’s largest lifestyle retail chain focused on western and work-related footwear, apparel, and accessories. The company, which went public in 2014, has grown steadily since its founding in 1978 via a combination of organic growth and tuck-in acquisitions. Today the company has 240 stores in 33 states. Stores are typically freestanding or located in strip centers. Boot Barn has tapped into a compelling market, targeting customers ranging from passionate western and country enthusiasts to workers looking for quality footwear and apparel.

The company has been an impressive growth story, averaging annualized sales growth of more than 20% since 2013. Management points to the popularity of NASCAR, country music, and pick-up trucks as evidence it operates within an attractive niche, and highlights an approximate $20 billion market opportunity. The market is highly fragmented, with Boot Barn possessing more than twice the number of stores of its nearest direct competitor, giving it a size advantage. The company also faces less fashion risk than many retailers, as it features basic, everyday merchandise and its best-selling styles tend to carry over year to year with only minor changes. Approximately 70% of the company’s product offering is on automated replenishment, which translates to lower markdown risk with the vast majority of sales at full price.

Over the past twelve months the company registered more than $800 million in sales. Approximately 70% comes from western products, with work and other products accounting for the remainder. Unsurprisingly, footwear serves as the anchor, comprising just over half of sales, while apparel accounts for approximately a third, and hats, accessories, and other products contribute the remainder. Foot traffic in stores is roughly evenly split between men and women, though men account for about two-thirds of sales.

E-commerce contributes less than 20% of sales as the company relies primarily on its physical stores. Boot Barn offers products on its bootbarn.com site, with an everyday low-price shopping experience, as well as on sheplers.com, which is more promotional. The company also owns countryoutfitter.com which appeals to a more fashion-oriented customer. E-commerce growth has been moderate in recent quarters by design, as the company has placed a greater emphasis on profitability in that channel.

Exclusive private brand products are a key differentiator that drive traffic and help to boost merchandise margin. Exclusive brand products account for approximately 16% of sales and the company continues to believe it can grow the contribution from private label around 2% annually, with the longer-term expectation it can achieve 25%-30% of total sales. Two of Boot Barn’s top five brands are exclusive to the company. Successful recent launches of new exclusive brand products, such as Idyllwind, fueled by Miranda Lambert, have led the company to project nearly 20% of sales to come from private brands this year.

New stores will continue to contribute to topline growth as the company has highlighted plenty of opportunity for an expanded geographic presence. Boot Barn has added stores annually at a double-digit percentage rate since Fiscal 2012, and it expects to grow its store base by 10% in the current fiscal year to 265 stores. Management believes it can ultimately expand to 500 stores nationwide by growing stores about 10% per year over the next several years. Further, the company believes it can capitalize on this growth opportunity without substantially modifying its current resources and infrastructure.

New store economics are compelling. Stores have an average size of approximately 10,000 square feet with an initial required investment of $800,000. Sales in a store’s first year average $1.7 million with an average payback period of approximately three years. Historically, Boot Barn has augmented new store development with tuck-in acquisitions in order to rapidly enter new markets. Acquisitions are also expected to achieve a three-year payback period or better.

One risk is the relative concentration of its stores. Combined, Texas and California make up over 40% of the overall store base. As a result, performance can be sensitive to the economic conditions in those states.

Performance in Texas, in particular, has been correlated with energy prices given local economies’ dependence on oil extraction. A decline in oil prices negatively impacted results in Fiscal 2016/17 as total company comparable-store sales turned negative in response to a slowdown in oil markets. Continued store growth into new markets helps diversify the risk related to any single industry or geography, so this is a risk that should ease over time. To put the negative same-store sales into context, company same-store sales have averaged more than 8% over the past 10 years and in Fiscal 2020 the company expects growth of 6%.

Tariffs pose another potential risk. Approximately 50% of Boot Barn’s sales are sourced from China. This includes 10% from exclusive private brands and 40% from third party vendors. For exclusive brands the company continues to explore alternative sourcing. With third party vendors, management indicated it expects its vendors and their factories to absorb a portion of the tariffs. The company is also aided by the somewhat nondiscretionary nature of the products it sells, like work boots, as it looks to pass through modest price increases for most of its categories in order to cover incremental costs. To date, Boot Barn has not experienced nor does it expect to experience a meaningful financial impact from tariffs.

We anticipate Boot Barn will be able to grow revenue at an average rate of 12% over the next several years via a combination of new store growth and continued positive same-store sales performance. We also anticipate EPS growth averaging 16%. Projecting 16% EPS growth over the next five years and applying a high P/E of 25.0, we get a potential high price of 76. Applying a low P/E of 16.0 to trailing EPS of 1.45 yields a low price of 23. Therefore, we model an upside/downside ratio of 3.1 to 1 and a projected high total return of over 16% annually.”

Editor’s Note: The Investor Advisory Service (IAS) is one of the nation’s top-performing stock investment newsletters. IAS has outperformed the market over the last 10- and 20-year periods, making it one of the top-ranked newsletters for consistent long-term stock market performance, according to the Hulbert Financial Digest.

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