Why Investors Aren’t Kicking Up Their Heels Over Boot Barn Stock?

Key Points

• Boot Barn delivered mixed quarterly earnings, but it’s the guidance that is sending the stock lower.
• The sell-off is ending a multi-year run that, coincidentally, corresponded to the run of the Paramount hit Yellowstone.
• The fundamentals paint a mixed picture, but analysts are bullish on the stock.

Boot Barn Holdings, Inc. NASDAQ: BOOT delivered mixed fourth-quarter earnings on May 17, 2023. The specialty retailer that offers footwear, apparel, and accessories with a western theme beat expectations on the bottom line. Earnings per share (EPS) of $1.53 beat expectations of $1.45. The number also beat on a year-over-year basis. 

But the top line gave investors a more mixed picture. The company delivered $425.70 million in revenue, missing expectations for $441 million. And even though the revenue was higher on a year-over-year basis, the company is not expecting it to stay that way. 

Once again, it’s all about the guidance. Boot Barn is projecting first-quarter revenue for the quarter ending June 30, 2023 to come in between $357 million and $364 million. The high end of that guidance would still fall short of estimates by 0.5%. 

And the company offered a similar picture for earnings. Earnings per share for the upcoming quarter are expected to be in a range of 79 cents to 85 cents per share. That’s far below the $1.26 that Boot Barn delivered in the same quarter in 2022. 

The Yellowstone Effect May be Winding Down

Yellowstone is one of the most popular shows to attract viewers in recent years. The show’s western theme is an ideal showcase for individuals who want to channel their inner cowboy. The show debuted in June 2018. BOOT stock was changing hands at around $21 a share. 

Fast forward five years and BOOT stock is up nearly 175% and that’s down about 50% from its high in December 2022. And in the middle of that time was a global pandemic that saw millions of consumer flocking to streaming services as one of their forms of entertainment. 

Of course, the “Yellowstone Effect” is hard to prove, but the show is said to be wrapping up at the end of this season. And so it is that the company is facing a much different economic landscape for its consumers.

This was reflected in the company’s most recent 10-K filing. The first item under “Risks Related to the Business” was “Our sales could be severely impacted by decreases in consumer spending due to declines in consumer confidence, local economic conditions in our markets or changes in consumer preferences.”

I understand, and you should too, that most of what is in the “risk” section of a 10-K is boilerplate language that gets carried over from one filing to the next. But in this case, there is some truth to what the company is saying. Consumer confidence as pointed out by the University of Michigan survey is low. And consumer demand - particularly for discretionary items - is weakening. 

Should You Buy This Dip on BOOT Stock?

Your answer will depend on how much you believe in the analysts, because they’re still bullish on BOOT stock. Since the earnings report several analysts have lowered their price targets. But the MarketBeat Boot Barn analyst ratings show that several of those targets are still above the consensus estimate of $88.40 which is a 33% upside for the stock. Plus, Boot Barn is attractively valued at only 13x forward earnings. The stock also has a low debt-to-income ratio. 

On the other hand, short interest in the stock is up about 10% in the last month and the stock has a beta of over 2.5. That means investors should expect some near-term volatility, particularly if the Fed keeps interest rates at elevated levels. Or, as at least one Fed official suggests, if the Fed continues to raise rates throughout 2023. 

BOOT stock tested its January low after earnings but bounced higher. If you believe that the stock has found a bottom, it may be time to get in. But if you believe that this recession will be nastiere than expected, there are two areas to watch. The first is an area around $159 which was where the stock traded in mid-December or its November 2022 low of around $152.