Clothing and footwear retailer Boot Barn (NYSE:BOOT) reported Q1 CY2024 results beating Wall Street analysts' expectations, with revenue down 8.7% year on year to $388.5 million. The company also expects next quarter's revenue to be around $403 million, coming in 1% above analysts' estimates. It made a GAAP profit of $0.96 per share, down from its profit of $1.53 per share in the same quarter last year.
Boot Barn (BOOT) Q1 CY2024 Highlights:
- Revenue: $388.5 million vs analyst estimates of $385 million (small beat)
- EPS: $0.96 vs analyst estimates of $0.89 (8% beat)
- Revenue Guidance for Q2 CY2024 is $403 million at the midpoint, above analyst estimates of $398.8 million
- Management's revenue guidance for the upcoming financial year 2025 is $1.78 billion at the midpoint, missing analyst estimates by 2.5% and implying 7% growth (vs 0.9% in FY2024)
- Gross Margin (GAAP): 35.9%, down from 36.6% in the same quarter last year
- Free Cash Flow was -$31.86 million compared to -$39.64 million in the same quarter last year
- Same-Store Sales were down 5.9% year on year
- Store Locations: 400 at quarter end, increasing by 55 over the last 12 months
- Market Capitalization: $3.24 billion
With a strong store presence in Texas, California, Florida, and Oklahoma, Boot Barn (NYSE:BOOT) is a western-inspired apparel and footwear retailer.
Cowboy boots, western hats, jeans, and belts from brands such as Wrangler, Stetson, and Carhartt are perennially popular items. Because the western theme unifies its merchandise, Boot Barn is able to offer more breadth and depth in that style than most other general apparel retailers. The core Boot Barn customer tends to be anyone who embraces the western lifestyle, whether that’s because they’re actual ranchers or cowboys or because they simple like the aesthetic.
The average Boot Barn store is quite small, approximately 11,000 square feet and typically located in rural or suburban malls and shopping centers with other retailers. In addition to its physical stores, Boot Barn has an e-commerce presence that was launched in 2012. It allows the company to reach US customers who may not have access to one of its physical stores, as states such as New York, Ohio, Massachusetts, Michigan, and some others do not have a single store.
Footwear Retailer
Footwear sales–like their apparel counterparts–are driven by seasons, trends, and innovation more so than absolute need and similarly face the bigger-picture secular trend of e-commerce penetration. Footwear plays a part in societal belonging, personal expression, and occasion, and retailers selling shoes recognize this. Therefore, they aim to balance selection, competitive prices, and the latest trends to attract consumers. Unlike their apparel counterparts, footwear retailers most sell popular third-party brands (as opposed to their own exclusive brands), which could mean less exclusivity of product but more nimbleness to pivot to what’s hot.
Niche apparel competitors include The Buckle (NYSE:BKE), Urban Outfitters (NASDAQ:URBN), and American Eagle Outfitters (NYSE:AEO).Sales Growth
Boot Barn is a small retailer, which sometimes brings disadvantages compared to larger competitors that benefit from economies of scale. On the other hand, one advantage is that its growth rates can be higher because it's growing off a small base.
As you can see below, the company's annualized revenue growth rate of 16.5% over the last five years was impressive as it added more brick-and-mortar locations and expanded its reach.
This quarter, Boot Barn reported a rather uninspiring 8.7% year-on-year revenue decline to $388.5 million in revenue, in line with Wall Street's estimates. The company is guiding for revenue to rise 5% year on year to $403 million next quarter, in line with the 4.9% year-on-year increase it recorded in the same quarter last year. Looking ahead, Wall Street expects sales to grow 9.6% over the next 12 months, an acceleration from this quarter.
Same-Store Sales
A company's same-store sales growth shows the year-on-year change in sales for its brick-and-mortar stores that have been open for at least a year, give or take, and e-commerce platform. This is a key performance indicator for retailers because it measures organic growth and demand.
Boot Barn's demand has been shrinking over the last eight quarters, and on average, its same-store sales have declined by 2.5% year on year. This performance is quite concerning and the company should reconsider its strategy before investing its precious capital into new store buildouts.
In the latest quarter, Boot Barn's same-store sales fell 5.9% year on year. This performance was more or less in line with the same quarter last year.
Number of Stores
The number of stores a retailer operates is a major factor of how much it can sell and its growth is a critical driver of how quickly its sales can grow.
When a retailer like Boot Barn is opening new stores, it usually means it's investing for growth because demand is greater than supply. Boot Barn's store count increased by 55 locations, or 15.9%, over the last 12 months to 400 total retail locations in the most recently reported quarter.
Taking a step back, the company has rapidly opened new stores over the last eight quarters, averaging 15.1% annual growth in its physical footprint. This store growth is much higher than other retailers and gives Boot Barn a chance to scale towards a mid-sized company over time. With an expanding store base and demand, revenue growth can come from multiple vectors: sales from new stores, sales from e-commerce, or increased foot traffic and higher sales per customer at existing stores.
Gross Margin & Pricing Power
Gross profit margins tell us how much money a retailer gets to keep after paying for the goods it sells.
Boot Barn's unit economics are higher than the typical retailer, giving it the flexibility to invest in areas such as marketing and talent to reach more consumers. As you can see below, it's averaged a decent 36.8% gross margin over the last eight quarters. This means the company makes $0.37 for every $1 in revenue before accounting for its operating expenses.
Boot Barn's gross profit margin came in at 35.9% this quarter, flat with the same quarter last year. This steady margin stems from its efforts to keep prices low for consumers and signals that it has stable input costs (such as freight expenses to transport goods).
Operating Margin
Operating margin is an important measure of profitability for retailers as it accounts for all expenses keeping the lights on, including wages, rent, advertising, and other administrative costs.
In Q1, Boot Barn generated an operating profit margin of 9.8%, down 4.9 percentage points year on year. We can infer Boot Barn was less efficient with its expenses or had lower leverage on its fixed costs because its operating margin decreased more than its gross margin.
Zooming out, Boot Barn has managed its expenses well over the last two years. It's demonstrated solid profitability for a consumer retail business, producing an average operating margin of 12.9%. However, Boot Barn's margin has slightly declined by 2.1 percentage points year on year (on average). This shows the company has faced some small speed bumps along the way. EPS
These days, some companies issue new shares like there's no tomorrow. That's why we like to track earnings per share (EPS) because it accounts for shareholder dilution and share buybacks.
In Q1, Boot Barn reported EPS at $0.96, down from $1.53 in the same quarter a year ago. This print beat Wall Street's estimates by 8%.
Wall Street expects the company to continue growing earnings over the next 12 months, with analysts projecting an average 7.8% year-on-year increase in EPS.
Cash Is King
If you've followed StockStory for a while, you know that we emphasize free cash flow. Why, you ask? We believe in the end, cash is king, and you can't use accounting profits to pay the bills.
Boot Barn burned through $31.86 million of cash in Q1, representing a negative 8.2% free cash flow margin. The company increased its cash burn by 19.6% year on year.
Over the last two years, Boot Barn has shown decent cash profitability, giving it some reinvestment opportunities. The company's free cash flow margin has averaged 2.5%, slightly better than the broader consumer retail sector. Furthermore, its margin has averaged year-on-year increases of 9.2 percentage points. This likely pleases the company's investors.
Return on Invested Capital (ROIC)
EPS and free cash flow tell us whether a company was profitable while growing revenue. But was it capital-efficient? Enter ROIC, a metric showing how much operating profit a company generates relative to how much money the business raised (debt and equity).
Boot Barn's five-year average ROIC was 15.1%, slightly better than the broader sector. Just as you’d like your investment dollars to generate returns, Boot Barn's invested capital has produced decent profits.
The trend in its ROIC, however, is often what surprises the market and drives the stock price. Over the last few years, Boot Barn's ROIC averaged 3 percentage point increases. This is a good sign, and if the company's returns keep rising, there's a chance it could evolve into an investable business.
Balance Sheet Risk
As long-term investors, the risk we care most about is the permanent loss of capital. This can happen when a company goes bankrupt or raises money from a disadvantaged position and is separate from short-term stock price volatility, which we are much less bothered by.
Boot Barn reported $75.85 million of cash and $466.8 million of debt on its balance sheet in the most recent quarter. As investors in high-quality companies, we primarily focus on two things: 1) that a company's debt level isn't too high and 2) that its interest payments are not excessively burdening the business.
With $270.4 million of EBITDA over the last 12 months, we view Boot Barn's 1.4x net-debt-to-EBITDA ratio as safe. We also see its $1.78 million of annual interest expenses as appropriate. The company's profits give it plenty of breathing room, allowing it to continue investing in new initiatives.
Key Takeaways from Boot Barn's Q1 Results
It was good to see Boot Barn beat analysts' gross margin and EPS expectations this quarter. On the other hand, its full-year revenue guidance missed Wall Street's estimates, sending the stock down 6.5% after hours. Overall, the results could have been better. The company currently trades at $100 per share.
Is Now The Time?
When considering an investment in Boot Barn, investors should take into account its valuation and business qualities as well as what's happened in the latest quarter.
We have other favorites, but we understand the arguments that Boot Barn isn't a bad business. First off, its revenue growth has been impressive over the last five years. And while its shrinking same-store sales suggests it'll need to change its strategy to succeed, its new store openings have increased its brand equity.
Boot Barn's price-to-earnings ratio based on the next 12 months is 20.7x. There are things to like about Boot Barn and there's no doubt it's a bit of a market darling, at least for some investors. But it seems there's a lot of optimism already priced in and we wonder if there are better opportunities elsewhere right now.
Wall Street analysts covering the company had a one-year price target of $108.50 per share right before these results (compared to the current share price of $100).
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