Exclusive Brands And Expansion Will Strengthen Future Specialty Retail Position

Key Takeaways

• Boot Barn's expansion strategy and strong same-store sales growth promise substantial revenue and market share increases.
  
• Enhanced e-commerce and exclusive brand penetration are poised to improve margins and boost earnings.
  
• Leadership changes, increased expenses, geopolitical risks, and economic uncertainties pose challenges to Boot Barn's strategic consistency, margins, and revenue growth.

Catalysts

Operates specialty retail stores in the United States and internationally.

• Boot Barn is expected to significantly expand its store base, projecting to more than double its current store count in the U.S., leading to substantial revenue growth and market share gains.
  
• The company is experiencing strong same-store sales growth, with plans to continue this through increased transactions and larger average transaction sizes, which will drive future revenue increases.
  
• Enhancing their omnichannel leadership, e-commerce sales are growing rapidly, with innovations like the Boot Barn app contributing to higher-margin online revenue growth.
  
• Boot Barn's merchandise margin is expected to improve due to supply chain efficiencies, better buying economies of scale, and growth in exclusive brand penetration, positively impacting future net margins.
  
• The strategic increase in exclusive brand penetration is set to contribute to merchandise margin growth, ultimately boosting the company's overall earnings.

Boot Barn Holdings Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Boot Barn Holdings's revenue will grow by 13.8% annually over the next 3 years.
• Analysts assume that profit margins will increase from 8.7% today to 10.1% in 3 years time.
• Analysts expect earnings to reach $261.0 million (and earnings per share of $8.34) by about December 2027, up from $153.4 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 25.7x on those 2027 earnings, down from 29.7x today. This future PE is greater than the current PE for the US Specialty Retail industry at 16.4x.
• Analysts expect the number of shares outstanding to grow by 0.84% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.98%, as per the Simply Wall St company report.

Boot Barn Holdings Future Earnings Per Share Growth

Risks

• The departure of CEO Jim Conroy introduces uncertainty regarding leadership continuity, possibly affecting strategic consistency and operational stability, thus impacting future earnings.
  
• Increased selling, general and administrative (SG&A) expenses, primarily due to higher incentive-based compensation and legal expenses, could pressure net margins if not managed carefully going forward.
  
• The reliance on China for 30% of their exclusive brand manufacturing exposes Boot Barn to tariff and geopolitical risks, which could affect cost of goods and impact merchandise margins.
  
• A potential increase in promotional activities by competitors could pressure Boot Barn to lower prices, potentially impacting revenue growth and merchandise margins.
  
• The economic uncertainties, such as the impact of elections and macroeconomic conditions, could distract customers or alter spending habits, impacting same-store sales growth and overall revenue.

Valuation

• The analysts have a consensus price target of $176.67 for Boot Barn Holdings based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $195.0, and the most bearish reporting a price target of just $155.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2027, revenues will be $2.6 billion, earnings will come to $261.0 million, and it would be trading on a PE ratio of 25.7x, assuming you use a discount rate of 7.0%.
• Given the current share price of $149.02, the analyst's price target of $176.67 is 15.6% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.