The retail sector may be facing an uncertain future, but Boot Barn Holdings Inc.’s (BOOT, Financial) stock could deliver further growth after its 25% rise over the past year.
The western-inspired apparel retailer is implementing a growth strategy that focuses on opening new stores, investing in new technology and improving the customer experience.
Operational changes
Boot Barn is currently making changes to its store layout in order to optimize its selling space. This includes an expansion within the work boot and work apparel categories as the business pivots to focusing on segments that are experiencing high demand. This could catalyze its sales growth while simultaneuosly broadening its customer appeal through increasing the range of sizes and styles it offers.
The company eliminated non-value-added administrative tasks within its stores in the first quarter, which should increase the amount of time employees devote to interacting with customers. This initiative has led to continued improvements in its customer service scores, which should widen its economic moat. It also introduced a refreshed labor schedule that could further enhance its customer satisfaction levels.
Store openings
In July, the retailer reported it opened one new store in its fiscal first quarter and plans to open 24 more stores throughout 2020. Its maximum three-year payback period on new stores ensures it retains a disciplined approach as it seeks to double the number of locations from 240 to around 500 stores over the long run.
The new stores could complement Boot Barn's acquisition strategy. In its first-quarter update, the retailer said it is seeking opportunistic acquisitions to increase the size of its total addressable market and boost its appeal among consumers.
Technological changes
The company continues to invest in digital technology to improve the customer experience. For example, it installed rangefinder touch screens in its stores that allow shoppers to browse its extensive product lines as well as order out-of-stock items that can be shipped to their homes. The screens are expected to help drive customer conversion rates.
Boot Barn is also adding greater flexibility to its mobile app. For example, it expanded the number of payment options available to customers, which could increase engagement levels and boost sales.
Retail uncertainty
The outlook for the retail sector is uncertain. As U.S. consumers are becoming increasingly concerned about the potential impact of the ongoing trade dispute with China, the Conference Board’s consumer sentiment index posted its biggest drop in September since the start of 2019. This could negatively affect sales as retailers begin passing import tariffs on to consumers through higher prices.
Boot Barn’s exclusive brands could provide it with strong growth prospects compared to its competitors. It is gradually transforming its inventory to include more exclusive brands, which provides the company with greater differentiation compared to its peers. In addition, its gross margin is over 1,000 basis points higher than the national brands it sells. This could mitigate the impact of a possible decline in the company’s sales growth rate, as well as strengthen its competitive advantage.
Outlook
Analysts expect the company to record 16% growth in earnings per share in 2020, followed by a 19% increase the following year. The price-earnings ratio of 23.5 suggests Boot Barn offers good value based on its financial prospects.
Disclosure: The author has no positions in any stocks mentioned.
Read more here:
- AutoZone: Further Growth Ahead After 40% Rise
- Party City: An Undervalued Turnaround Stock
- Why Scholastic Has Turnaround Potential
Not a Premium Member of GuruFocus? Sign up for a free 7-day trial here.
